<PAGE> 1
VANGUARD CALIFORNIA
TAX-EXEMPT FUNDS
VANGUARD CALIFORNIA TAX-EXEMPT
MONEY MARKET FUND
VANGUARD CALIFORNIA INSURED
INTERMEDIATE-TERM TAX-EXEMPT FUND
VANGUARD CALIFORNIA INSURED
LONG-TERM TAX-EXEMPT FUND
ANNUAL
REPORT
NOVEMBER 30, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
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AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto--"Leading the way"--serves as a guiding principle for
our company.
- - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington
Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was
friend and mentor to Vanguard founder John C. Bogle, and helped to shape the
standards and business principles that Mr. Bogle laid down for Vanguard at its
beginning nearly 25 years ago: a stress on balanced, diversified investments;
insistence on fair dealing and candor with clients; and a focus on long-term
investing. To our great regret, Mr. Morgan died on September 2.
- - The 70th anniversary, on December 28, of the incorporation of Vanguard
Wellington Fund. It was the nation's first balanced mutual fund, and is one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
7
REPORT FROM
THE ADVISER
9
PERFORMANCE SUMMARIES
11
FUND PROFILES
14
FINANCIAL STATEMENTS
18
REPORT OF
INDEPENDENT ACCOUNTANTS
40
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
DEAR SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
Interest rates declined on balance during the twelve months ended November 30,
1998--the fiscal year for the Vanguard California Tax-Exempt Funds--providing a
significant boost to prices of tax-exempt municipal bonds. In this bond-friendly
environment of lower rates and tame inflation, the +3.1% return of our
California Tax-Exempt Money Market Fund, the +7.5% return of our California
Insured Intermediate-Term Tax-Exempt Fund, and the +8.3% return of our
California Insured Long-Term Tax-Exempt Fund exceeded the results of their
peers.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
COMPONENTS OF TOTAL RETURNS
FISCAL YEAR ENDED
NOVEMBER 30, 1998
------------------------------
CALIFORNIA TAX-EXEMPT FUND INCOME CAPITAL TOTAL
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Money Market +3.1% 0.0% +3.1%
(SEC 7-Day Annualized Yield: 2.74%)
Insured Intermediate-Term +4.8 +2.7 +7.5
Insured Long-Term +5.2 +3.1 +8.3
- ----------------------------------------------------------------------
</TABLE>
The table at right presents each fund's twelve-month return along with
its income and capital components. The total return (capital change plus
reinvested dividends) of the Insured Long-Term Tax-Exempt Fund return is based
on a change in net asset value from $11.45 per share on November 30, 1997, to
$11.73 per share on November 30, 1998, adjusted for dividends totaling $0.577
per share paid from net investment income and a distribution of $0.069 per share
paid from net realized capital gains. The Insured Intermediate-Term Fund's
return is based on a change in net asset value from $10.66 per share on November
30, 1997, to $10.95 per share on November 30, 1998, adjusted for dividends
totaling $0.489 per share paid from net investment income. The Money Market
Fund's net asset value remained at $1 per share, as was expected but not
guaranteed. At the end of the fiscal year, the Insured Long-Term Fund's yield
stood at 4.33%, the Insured Intermediate-Term Fund's yield at 3.87%, and the
Money Market Fund's yield at 2.74%.
FINANCIAL MARKETS IN REVIEW
During the twelve months ended November 30, investors fretted over a variety of
developments both here and abroad, from the debt problems of foreign governments
to a huge hedge-fund bailout to growing concern about corporate profits.
Overall, the uncertainty made for a tumultuous, but ultimately rewarding, period
in the equity markets and a fine fiscal year for bonds.
The yield of the benchmark 30-year U.S. Treasury bond fell about 100
basis points on balance, ending the period at 5.06% after bottoming out at 4.72%
in early October. During the autumn, the Federal Reserve Board trimmed
short-term rates three times in seven weeks by a total of 0.75 percentage point,
citing the strain of international woes on the U.S. economy. The economy
continued to exhibit steady growth (about 3% during the period), and inflation
remained low. Consumer prices were up just 1.5% for the fiscal year.
Of course, as interest rates drop, bond prices rise. That meant
outstanding returns for bonds during the fiscal year, particularly for
longer-maturity issues, which benefit most from interest-rate declines. The
Lehman Brothers Long U.S. Treasury Bond Index earned a total return of +15.7%,
with its +7.2% income return augmented by an +8.5% capital return.
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Yields on high-grade long-term municipal bonds did not fall as far as
those for Treasury securities. Top-rated long-term municipal bonds ended the
fiscal year with a yield of 4.89%, down from 5.25% at the end of November 1997.
Yields on top-grade (MIG-1) 3-month notes, which are more sensitive than
longer-term issues to changes in short-term interest rates, declined on balance
to 2.95% from 3.80% a year earlier. For the twelve months, the Lehman 10 Year
Municipal Bond Index, a good measure of the long-term municipal market, returned
+8.1%--an outstanding return considering the tax advantages of municipal bonds
and the extremely low inflation rate.
The U.S. stock market, meanwhile, weathered a severe summer storm that
drove the broad market down nearly -20% and clipped more than 40% from the value
of many smaller stocks. A swift recovery ensued during the final three months of
the fiscal year, and for the twelve months, the Standard & Poor's 500 Composite
Stock Price Index was up +23.7%.
The 1998 fiscal year will likely be remembered as a period of
extraordinary relative value in the municipal bond market. On November 30,
yields on long-term U.S. Treasuries and long-term municipal bonds were nearly
identical--a truly remarkable occurrence, given that income from state-specific
municipal bond funds is exempt from federal, state, and local taxes for state
residents. The yield convergence has been the result of several factors.
Treasury bonds benefited from both an easing of inflation fears and a "flight to
quality" by foreign investors--particularly from Asia--who bought Treasury
securities to protect themselves from declines in their currencies versus the
U.S. dollar. Meanwhile, new Treasury issuance dropped--thanks to the federal
budget surplus--and issuance of new municipal bonds soared, dampening prices a
bit and keeping yields high in relation to Treasuries.
Throughout the summer and into the fall, yields of long-term municipal
bonds were equal to about 98% of the yield on comparable Treasuries, and on
several occasions muni yields matched or even slightly exceeded Treasury yields.
To be sure, this phenomenon is temporary, but it made municipal bonds as
valuable in relation to Treasuries as they've ever been. Historically, municipal
bonds have offered a yield equal to about 84% of the yield on Treasury bonds.
It's always important to view the performance of bonds in the proper
perspective, especially after a year when declining interest rates pushed
returns higher. As you may recall, during the past two fiscal years bond prices
received only a small capital boost. Just four years ago, in 1994, interest
rates rose sharply and bond prices plunged, providing a painful lesson about the
volatility of bond-fund returns. It is also important for investors to
understand that the ever-present fluctuations in the bond market tend to offset
each other over longer periods, leaving the rate of interest income as the
dominant long-term source of bond returns.
FISCAL 1998 PERFORMANCE OVERVIEW
The +8.3% return of the Vanguard California Insured Long-Term Tax-Exempt Fund
topped the +7.3% return of the average California municipal bond fund and the
+7.8% return of the unmanaged Lehman Municipal Bond Index. This index, which
includes municipal bonds from across the country, is a notoriously tough
competitor because it does not incur the "real world" operating expenses and
transaction costs that all mutual funds must bear. Though the majority of our
total return came from interest income, the fund earned a capital return of
+3.1% that reflected the interest-rate decline.
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Our Intermediate-Term Tax-Exempt Fund earned a +7.5% return that outpaced
the +6.7% return of the average intermediate-term California municipal bond fund
and the +7.3% return of the unmanaged Lehman 7 Year Municipal Bond Index. Our
Tax-Exempt Money Market Fund provided a total return of +3.1%, outpacing the
+2.8% return of its average peer.
THE MUNICIPAL BOND TAX ADVANTAGE
For California residents, the income earned by our funds is exempt from state,
local, and federal income taxes. At current yields, that means that investors in
long-term tax-exempt municipal bonds who are taxed at the highest marginal tax
rate can earn an astounding 65% more after-tax income than they could in a
comparable long-term U.S. Treasury bond fund, and investors in insured
intermediate-term municipal bonds can earn 50% more after-tax income than in
comparable Treasury securities. Our Tax-Exempt Money Market Fund also offers
California residents a distinct advantage over Treasuries with similar
maturities. On November 30, the yield of MIG-1 notes was 11% higher than the
after-tax yield of 90-day U.S. Treasury bills. To look at this another way, a
yield of 5.1% on a tax-exempt long-term bond would be the equivalent of an 8.4%
taxable yield for California taxpayers subject to the highest tax rates. For a
tax-exempt short-term yield of 3.0%, the taxable equivalent would be 5.0%.
These remarkable advantages are illustrated in the table at right, which
compares the annual net income earned on tax-exempt and taxable U.S. Treasury
securities as of November 30, 1998, assuming a $100,000 investment. Our
illustration assumes current yields (as of November 30, 1998) of 5.1% for
long-term U.S. Treasury bonds, 4.7% for intermediate-term U.S. Treasury bonds,
4.5% for U.S. Treasury bills, 5.1% for long-term municipals, 4.2% for
intermediate-term municipals, and 3.0% for short-term municipals.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
ILLUSTRATION OF INCOME FROM
A HYPOTHETICAL $100,000 INVESTMENT
SHORT- INTERMEDIATE- LONG-
TERM TERM TERM
- --------------------------------------------------------------------
<S> <C> <C> <C>
Taxable gross income $4,500 $4,700 $5,100
Less taxes (39.6%) (1,800) (1,900) (2,000)
Net after-tax income 2,700 2,800 3,100
- --------------------------------------------------------------------
Tax-exempt income $3,000 $4,200 $5,100
- --------------------------------------------------------------------
Tax-exempt income advantage $300 $1,400 $2,000
- --------------------------------------------------------------------
Percentage advantage 11% 50% 65%
- --------------------------------------------------------------------
</TABLE>
The tax adjustment assumes a typical itemized tax return based on a federal tax
rate of 39.6%; local taxes are not considered. The illustration is not intended
to represent future results.
Of course, in terms of credit quality, state-specific municipal bond
funds, by definition, don't match up to U.S. Treasury bond funds, whose
securities are backed by the full faith and credit of the U.S. government. Also,
single-state municipal bond funds lack geographic diversification. Private
insurance on the bonds in our Long-Term Tax-Exempt and Intermediate-Term
Tax-Exempt Funds, however, substantially mitigates these additional credit
risks. Though the insurance does not provide protection against fluctuations in
the funds' value, it guarantees full payment of interest and principal for our
bond holdings.
Portfolio insurance generally is not available for short-term securities,
so our investment adviser, Vanguard Fixed Income Group, is responsible for
preserving the principal of the Tax-Exempt Money Market Fund--a responsibility
the group fulfilled admirably. We remind you that money market investments are
not guaranteed by the Federal Deposit Insurance Corporation, which insures bank
accounts and certificates of deposit.
3
<PAGE> 6
LONG-TERM PERFORMANCE OVERVIEW
The table below compares the longer-term performance of our funds with those of
their average peer mutual funds. It also illustrates our performance edge over
our competitors, based on hypothetical investments of $10,000 made a decade ago
in our funds (since inception for the Insured Intermediate-Term Fund) and their
average competitors.
Our edge is explained, in part, by our lower expenses, a powerful--and,
we believe, sustainable--advantage that helps us toward our goal of providing
returns that exceed those of competitive norms. Our funds maintain expense
ratios (annual expenses as a percentage of average net assets) of about 0.20%,
far below the 1.03% charged by the average long-term state tax-exempt fund, the
0.92% charged by the average intermediate-term state tax-exempt fund, and the
0.53% charged by the average state tax-exempt money market fund. Our success is
also the result of the skillful management of Vanguard Fixed Income Group, which
has helped guide our funds to their superior record while maintaining the
highest investment quality in the industry.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED NOVEMBER 30, 1998
--------------------------------------------------------
FINAL VALUE OF
AVERAGE A $10,000
ANNUAL RATE INITIAL INVESTMENT*
--------------------------------------------------------
AVERAGE AVERAGE
CALIFORNIA VANGUARD COMPETING VANGUARD COMPETING VANGUARD
TAX-EXEMPT FUND FUND FUND FUND FUND ADVANTAGE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market +3.8% +3.4% $14,472 $13,988 $ 484
Insured
Intermediate-Term** +7.0 +6.0 13,766 13,191 575
Insured Long-Term +8.4 +7.7 22,482 21,093 1,389
- --------------------------------------------------------------------------------
</TABLE>
* Assuming reinvestment of all income dividends and capital gains
distributions.
**Annualized returns since inception on March 4, 1994.
We emphasize that the longer-term returns shown above are higher than
investors should expect with interest rates at current levels. The returns of
our Insured Long-Term and Insured Intermediate-Term Funds have been boosted by
capital appreciation due to generally declining interest rates since 1990. But
interest rates cannot decline forever. The best indicator of the average future
return on long-term bonds--and it is not a perfect predictor--is the current
yield on those bonds.
IN SUMMARY
The excellent returns earned by bonds over the past twelve months--as well as
over the past decade--should not lull investors into a false sense of security
about the safety of bonds or the reliability of returns. Bond returns will
inevitably revert to their historical (lower) averages, possibly with little or
no warning.
We believe that the specific risks of bonds, and the general risks of
investing, can be managed by a balanced investment program that includes stock
funds, bond funds, and money market funds suited to an individual's objectives,
time horizon, tolerance for risk, and financial situation. Once you have such a
program, you should be prepared to stick with it through good times and bad.
/s/JOHN C. BOGLE /s/JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
December 18, 1998
4
<PAGE> 7
NOTE: You'll observe that we have made minor changes in the names of the
Vanguard California Tax-Exempt Funds. We replaced the word "Tax-Free" with
"Tax-Exempt" and replaced "Portfolio" with "Fund" as part of a broader effort to
clarify the names in our fund lineup.
NOTICE TO SHAREHOLDERS
At a special meeting on July 24, 1998, shareholders of the Vanguard California
Tax-Exempt Funds overwhelmingly approved six proposals. The proposals and voting
results were:
1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. Based on the funds' assets at
the time of the vote, this change will reduce the amount of state taxes paid
each year by some Vanguard funds. The Vanguard California Tax-Exempt Funds will
not realize any tax savings as a result of the change, but the funds will
benefit from the efficiency of being organized the same way as all other
Vanguard funds. Approved by 95.73% of the shares voted, as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
FOR AGAINST ABSTAIN
------------------------------------------------------------
<S> <C> <C>
1,183,043,478 15,798,135 36,966,563
------------------------------------------------------------
</TABLE>
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This change
permits the California Tax-Exempt Funds to participate in Vanguard's interfund
lending program, which allows funds to loan money to each other if--and only
if--it makes good financial sense to do so on both sides of the transaction. The
interfund lending program won't be an integral part of the funds' investment
programs; it is a contingency arrangement for managing unusual cash flows.
Approved as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 1,026,388,210 53,347,978 42,472,055 91.46%
----------------------------------------------------------------------------------------
Insured Intermediate-Term 37,120,842 1,134,685 1,952,941 92.32%
----------------------------------------------------------------------------------------
Insured Long-Term 67,152,833 3,057,652 3,180,982 91.50%
----------------------------------------------------------------------------------------
</TABLE>
2b. INVESTMENT LIMITATION CHANGES--BORROWING MONEY AND PLEDGING ASSETS. This
change sets standard limits of 15% of net assets on the amount of money Vanguard
funds can borrow from all sources and on the amount of assets that can be
pledged to secure any loans. Approved as follows:
<TABLE>
<CAPTION>
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CALIFORNIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 1,007,728,423 65,374,455 49,105,365 89.80%
----------------------------------------------------------------------------------------
Insured Intermediate-Term 36,669,435 1,602,455 1,936,577 91.20%
----------------------------------------------------------------------------------------
Insured Long-Term 65,866,020 4,118,894 3,406,554 89.75%
----------------------------------------------------------------------------------------
</TABLE>
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2c. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN SECURITIES OWNED BY
AFFILIATES. This change eliminates the funds' policy of avoiding investments in
securities that are owned in certain amounts by Trustees, officers, and key
advisory personnel. This policy was well-intentioned but wrongly focused and
unnecessary in light of the funds' Code of Ethics and other regulatory
protections against conflicts of interest on the part of fund management.
Approved as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 1,015,374,442 62,735,872 44,097,929 90.48%
----------------------------------------------------------------------------------------
Insured Intermediate-Term 36,643,644 1,612,622 1,952,201 91.13%
----------------------------------------------------------------------------------------
Insured Long-Term 66,434,788 3,701,949 3,254,730 90.52%
----------------------------------------------------------------------------------------
</TABLE>
2d. INVESTMENT LIMITATION CHANGES--BONDS SECURED BY INTERESTS IN OIL, GAS, OR
MINERAL PROGRAMS. This change amends a policy prohibiting investments in
interests in oil, gas, or other mineral exploration or development programs.
While the funds still cannot invest directly in oil, gas, or mineral programs,
the change clarifies that the funds can invest in bonds and money market
instruments secured by interests in these programs. Approved as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 999,748,767 73,405,283 49,054,193 89.09%
----------------------------------------------------------------------------------------
Insured Intermediate-Term 36,261,637 1,966,445 1,980,385 90.18%
----------------------------------------------------------------------------------------
Insured Long-Term 65,617,727 4,434,233 3,339,507 89.41%
----------------------------------------------------------------------------------------
</TABLE>
2g. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN INDUSTRIAL REVENUE BONDS. This
change eliminates a policy imposing special restrictions on investments in
industrial revenue and development bonds. The change allows the funds to invest
in industrial revenue and development bonds without limit, subject to their
usual stringent quality and maturity guidelines. Approved as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND FOR AGAINST ABSTAIN APPROVED BY
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 1,006,197,092 64,739,742 51,271,409 89.66%
----------------------------------------------------------------------------------------
Insured Intermediate-Term 36,259,458 2,175,252 1,773,757 90.18%
----------------------------------------------------------------------------------------
Insured Long-Term 66,008,240 4,269,972 3,113,255 89.94%
----------------------------------------------------------------------------------------
</TABLE>
6
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THE MARKETS IN PERSPECTIVE
YEAR ENDED NOVEMBER 30, 1998
[PHOTO]
U.S. financial markets produced solid overall gains during the fiscal year ended
November 30. The S&P 500 Index gained 23.7% for the 12-month period, overcoming
a sharp summer setback. Bond prices rose as interest rates declined. Returns
from overseas stock markets varied widely, with big gains in Europe and losses
in most other markets.
U.S. STOCK MARKETS
The stock market's gains during the fiscal year were concentrated in
large-capitalization growth stocks. Within the S&P 500 Index, the growth stocks
rose 33.7%, while the value stocks were up 13.2%. The market's overall bias
toward large-caps showed starkly in the contrast between the S&P 500 and other
indexes. While the S&P 500 was rising 23.7%, the rest of the market returned a
paltry 2.6%, as measured by the Wilshire 4500 Equity Index. Small-cap stocks, as
represented by the Russell 2000 Index, did even worse--a negative return of
6.6%.
The market's ascent was not without incident, even for large-cap stocks.
After rising strongly to a record high on July 17, the S&P 500 fell by 19.2%
during the following six weeks, just shy of the 20% mark generally considered
the boundary distinguishing a bear market from a mere "correction." Declines
were certifiably bearish for smaller stocks, however.
The July-August tumble in stock prices reflected a number of factors that
collectively raised the anxiety level for many investors. Among these were
deteriorating corporate earnings reports and forecasts, Russia's default on its
debts, and a continuance of economic weakness in Asia. The persistence of Asia's
economic troubles--which first surfaced in mid-1997--began to slow the economic
expansions in the United States and Europe.
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1998
-------------------------------------
1 YEAR 3 YEARS 5 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 23.7% 26.7% 23.0%
Russell 2000 Index -6.6 10.3 11.3
MSCI EAFE Index 16.8 9.3 10.2
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 9.5% 7.7% 7.3%
Lehman 10 Year Municipal Bond Index 8.1 6.9 6.8
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.1 5.2 5.1
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.5% 2.2% 2.4%
- --------------------------------------------------------------------------------
</TABLE>
The rebound in stocks late in the fiscal year occurred even though
several sources of uncertainty remained, including doubts about global economic
growth and reductions in securities analysts' forecasts of future corporate
earnings. Stock prices got considerable help from the decline in interest rates.
(Low inflation and low interest rates help stock prices by raising the estimated
value of future dividends and earnings.)
Three forces clearly shaped the performance of industry sectors. They
could be summarized as faith (the buoyant confidence of consumers), fear
(related to the effects of economic troubles abroad), and fortresses (companies
somewhat protected from competition).
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<PAGE> 10
In contrast to the cautious stance of investors during fiscal 1998, U.S.
consumers threw caution to the wind. Feeling flush because of plentiful jobs
(the nation's unemployment rate was 4.4% at fiscal year-end) and rising wages,
consumers spent a record proportion of their income. Not surprisingly, then, two
big gainers among sectors of the S&P 500 Index were consumer discretionary
firms, such as retailers (+26%) and consumer staples (+22%).
Fear was a factor in the lagging returns in industry groups considered to
be vulnerable to slowing global growth, falling commodity prices, and tougher
price competition from foreign suppliers. Among these--all traditional value
sectors--were firms in the "other energy" category (-37%); chemical and other
materials & processing firms (essentially a zero return); and makers of producer
durables such as airplanes and machinery (+2%). Conversely, utilities did well
(+35%) in part because they are seen as relatively insulated from foreign
competition or economic woes. Fortresses are companies perceived as relatively
safe from competitors because of patented products or brands. Such companies led
the year's best-performing sectors: technology (+49%) and health care (+43%).
U.S. BOND MARKETS
Interest rates declined during the fiscal year, especially for U.S. Treasury
securities, which benefited from heightened aversion to risk among investors and
from a slight decrease in supply, thanks to a $70 billion federal budget
surplus. The Federal Reserve Board had the flexibility to cut short-term rates
in three quarter-point steps in the autumn because inflation was remarkably
tame--consumer prices rose just 1.5% for our fiscal year.
In this bond-friendly environment, yields on long-term Treasury issues
fell by roughly 100 basis points (1 percentage point), with the 30-year Treasury
bond ending the fiscal year at 5.06%. Lower rates mean higher prices for bonds,
and the Lehman Brothers Long U.S. Treasury Bond Index earned a total return of
15.7%, an astounding margin of some 14 percentage points over the inflation
rate.
Reflecting investors' flight to quality and worries about slowing
economic growth, prices fell for high-yield "junk" bonds. Even high-quality
corporate bonds and mortgage-backed securities did not rise in price as far as
Treasury securities. Mortgage bonds tend to lag Treasuries during periods when
falling rates lead to greater refinancing activity by homeowners, resulting in
unwanted prepayments of principal. The Lehman Aggregate Bond Index, which
comprises high-quality corporate and mortgage-backed bonds as well as
Treasuries, and has an intermediate-term average maturity, earned 9.5%.
Yields on long-term municipal bonds declined only modestly during the
fiscal year, and by November 30 were only slightly lower than yields on
comparable Treasury securities. This was striking because the interest on
municipals is exempt from federal income tax.
INTERNATIONAL STOCK MARKETS
Europe's stock markets outdistanced even the S&P 500 Index, but Asian and Latin
American markets were generally down during the fiscal year. As a group,
European stocks earned 27.8% in U.S.-dollar terms. Europe's bull market was
fueled by continuing economic growth, lower interest rates, increased corporate
merger activity, and optimism about the effects of the euro, a common currency
due to be adopted in 1999 by 11 nations.
Japan's stock market continued to suffer from the effects of a severe
recession and a shaky banking system. Stocks in Tokyo fell 4.5% in U.S.-dollar
terms. Elsewhere in Asia, returns were mixed, ranging from a rebound of 21% in
South Korea, through Australia's 11% gain, to big losses in Indonesia (-52%),
Malaysia (-42%), New Zealand (-25%), and Singapore (-18%). Losses were steep
throughout Latin America, including Mexico (-32%), Venezuela (-59%), Brazil
(-20%), and Chile (-22%).
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<PAGE> 11
REPORT FROM THE ADVISER
[PHOTO]
During the fiscal year ended November 30, nervous global investors flocked to
the safety of U.S. Treasury securities. The "flight to quality" began with the
collapse of Asian markets early in the year, then spread throughout the emerging
economies of the world. With each round of negative world events, U.S. Treasury
yields fell as investors bid up bond prices. In contrast to the volatility on
world financial markets, sailing was smooth for the U.S. economy, which produced
stable growth and low inflation. The Federal Reserve Board initially was
reluctant to lower short-term interest rates in the face of the fundamental
strength of the domestic economy; however, signs of international economic
calamity loomed ever larger, threatening future U.S. growth. By the second half
of our fiscal year, it was clear that domestic export-sensitive sectors were
slowing, and stock market volatility increased. The Fed then cut short-term
interest rates by a total of three-quarters of a percentage point. To date, the
Fed's action has helped calm the fears of a worldwide credit crunch and stemmed
investors' flight from risk. We will have to wait and see whether the worst is
over for global markets.
As one would expect, municipal bond yields fell in sympathy with the
decline in Treasury yields. However, a large supply of new tax-exempt bonds
muted the price increases. Consequently, municipal bonds underperformed their
Treasury bond counterparts. During the fiscal year, the benchmark 30-year U.S.
Treasury bond yield declined nearly 1 percentage point (from 6.05% to 5.06%). In
contrast, the yield on an AAA-rated tax-exempt bond of similar maturity declined
only three-tenths of 1 percent (from roughly 5.2% to 4.9%), and produced
commensurately less price appreciation.
As noted, the supply of new tax-exempt bonds grew dramatically during our
fiscal year. Two factors led to this increase in municipal debt. First, as
interest rates declined, municipalities rushed to issue new bonds that would
refinance their older, higher-coupon debt. Second, the financial strength of
many states and localities improved as robust economic performance boosted tax
revenues. This increased financial sustenance allowed many issuers to fund new
capital projects with tax-exempt debt. In all, tax-exempt issuance for the year
was up 27% to $278 billion in new bonds.
This abundance of new bonds offers unique value to investors in
longer-term municipal issues. As of our fiscal year-end, the yield on a
high-quality, long-maturity municipal bond was equal to an unusually high 96.8%
of the yield on a comparable U.S. Treasury security. At certain points during
the fiscal period, AAA-rated insured municipal bonds actually offered yields
higher than Treasury bonds, a situation not seen since 1986. For investors in
the maximum federal tax bracket (39.6%), high-grade municipal bonds offer about
3 percentage points in additional taxable-equivalent yield over comparable U.S.
Treasuries. Our state tax-exempt funds further boost after-tax returns by
providing income exempt from state tax. In the past, municipal bond yields have
not stayed
9
<PAGE> 12
high relative to Treasury bonds for long. However, because of the
persistence of global uncertainty and its beneficial effect on prices of
Treasury bonds, at present it's hard to predict when municipal yields will
return to more-normal levels. In the meantime, longer-term municipal bonds are a
steal.
The high credit quality of the Vanguard California Tax-Exempt Funds
played an important role in our strong performance relative to peers. Early in
our fiscal year, demand was quite strong for the higher yields of uninsured
bonds and those of speculative-grade credit quality. Market participants
disregarded the added credit risk they were assuming. Demand for lower-quality
securities was so high that investors accepted ever-smaller yield premiums for
assuming the extra credit risk, and yield spreads between bonds of different
quality tightened. But the bankruptcy of a major hospital group in Pennsylvania
in summer 1998 caused many bondholders to reconsider the relationship between
yield and credit quality.
Investors in Vanguard's insured single-state tax-exempt funds receive
additional credit protection. Although this municipal bond insurance does not
protect against changes in market value, it does guarantee the timely payment of
principal and interest. Our single-state tax-exempt funds are able to offer the
dual benefits of high credit quality and attractive yields year after year
because of our low expenses. Our emphasis on high credit quality should allow
our shareholders to sleep comfortably.
Over time, the simple combination of a disciplined risk approach with low
expenses has proven to be a powerful force for maximizing total return for
shareholders. Our continued focus on these basics produced the desired results
in fiscal 1998.
Yields on 1-year tax-exempt money market instruments fell 76 basis points
(0.76 percentage point) during the second half of our fiscal year, even though
summer is traditionally a season for heavy municipal borrowing. Over the full 12
months, the decline was 82 basis points, leaving the yield on the benchmark
1-year MIG-1 note at 2.99% on November 30. By comparison, the yield on 1-year
U.S. Treasury bills fell 92 basis points during the second half and 99 basis
points for the full year, closing with a yield of 4.50%. The plunge in
short-term yields was fueled by the global "flight to quality" and by the Fed's
75-basis-point cut in the fed funds rate. At fiscal year-end, the yield on
1-year MIG-1 notes therefore was equal to 66.4% of the yield on comparable
Treasury bills. Though this ratio is less favorable than that for yields of
long-term municipal bonds in relation to those of Treasury bonds, municipal
money markets still offer value for investors in the highest tax brackets.
As the new year begins, the California Tax-Exempt Money Market Fund is
positioned to take advantage of its dual strengths of conservative,
quality-oriented management and low expenses. We believe these attributes will,
over time, generate superior risk-adjusted returns.
Ian A. MacKinnon, Managing Director
Pamela Wisehaupt Tynan, Principal
Reid O. Smith, Principal
John M. Carbone, Principal
Danine A. Mueller, Principal
Christopher M. Ryon, Principal
Kathryn Allen, Principal
Vanguard Fixed Income Group
December 10, 1998
INVESTMENT PHILOSOPHY
The adviser believes that each fund, while operating within stated maturity and
stringent quality targets, can achieve a high level of current income that is
exempt from federal and California income taxes by investing in insured and
high-quality uninsured securities issued by California state, county, and
municipal governments.
10
<PAGE> 13
PERFORMANCE SUMMARY
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that returns
can fluctuate widely. An investment in a money market fund is neither insured
nor guaranteed by the U.S. government, and there is no assurance that the fund
will be able to maintain a stable net asset value of $1 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 1, 1987-NOVEMBER 30, 1998
- --------------------------------------------------------
CALIFORNIA TAX-EXEMPT AVERAGE
MONEY MARKET FUND FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1987 0.0% 2.2% 2.2% 2.1%
1988 0.0 5.1 5.1 4.8
1989 0.0 6.2 6.2 5.8
1990 0.0 5.6 5.6 5.3
1991 0.0 4.4 4.4 4.2
1992 0.0 3.0 3.0 2.7
1993 0.0 2.4 2.4 2.0
1994 0.0 2.6 2.6 2.3
1995 0.0 3.7 3.7 3.3
1996 0.0 3.3 3.3 2.9
1997 0.0 3.4 3.4 3.0
1998 0.0 3.1 3.1 2.8
- -------------------------------------------------------
</TABLE>
*Average California Tax-Exempt Money Market Fund.
See Financial Highlights table on page 35 for dividend information for the past
five years.
SEC 7-Day Annualized Yield (11/30/1998): 2.74%
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998
- ---------------------------------------------------------------------------
CA Tax-Exempt Money Market Average CA Tax-Exempt Money Market
<S> <C> <C>
1988 11 10000 10000
1989 02 10145 10138
1989 05 10310 10294
1989 08 10466 10438
1989 11 10619 10580
1990 02 10767 10715
1990 05 10916 10857
1990 08 11064 10995
1990 11 11213 11141
1991 02 11349 11265
1991 05 11475 11379
1991 08 11592 11486
1991 11 11711 11604
1992 02 11814 11693
1992 05 11906 11775
1992 08 11982 11843
1992 11 12059 11915
1993 02 12133 11976
1993 05 12205 12036
1993 08 12277 12094
1993 11 12350 12158
1994 02 12417 12215
1994 05 12491 12278
1994 08 12572 12345
1994 11 12670 12433
1995 02 12785 12533
1995 05 12909 12643
1995 08 13021 12739
1995 11 13138 12842
1996 02 13249 12940
1996 05 13356 13034
1996 08 13463 13120
1996 11 13574 13216
1997 02 13684 13310
1997 05 13801 13412
1997 08 13917 13508
1997 11 14037 13612
1998 02 14148 13708
1998 05 14267 13813
1998 08 14371 13900
1998 11 14472 13988
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1998
-------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Tax-Exempt Money Market Fund 3.10% 3.22% 3.77% $14,472
Average California Tax-Exempt Money Market Fund 2.76 2.84 3.41 13,988
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998*
- --------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
California Tax-Exempt Money Market Fund 6/1/1987 3.22% 3.21% 0.00% 3.81% 3.81%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
PERFORMANCE SUMMARY
CALIFORNIA INSURED INTERMEDIATE-TERM TAX-EXEMPT FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MARCH 4, 1994-NOVEMBER 30, 1998
- ---------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE-
TERM TAX-EXEMPT FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -3.6% 3.4% -0.2% -1.1%
1995 8.3 5.6 13.9 15.2
1996 1.3 5.1 6.4 5.2
1997 1.0 4.9 5.9 6.0
1998 2.7 4.8 7.5 7.3
- ---------------------------------------------------------
</TABLE>
*Lehman 7 Year Municipal Bond Index.
See Financial Highlights table on page 36 for dividend and capital gains
information since the fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MARCH 4, 1994-NOVEMBER 30, 1998
- ----------------------------------------------------------------------------------------------
CA Insured Intermediate-Term Average CA Intermediate Lehman 7 Year Municipal
Tax-Exempt Fund Tax-Exempt Fund Bond Index
<S> <C> <C> <C>
3/4/ 94 10000 10000 10000
1994 05 10142 10039 10059
1994 08 10313 10189 10236
1994 11 9981 9813 9889
1995 02 10538 10349 10458
1995 05 10895 10730 10876
1995 08 11044 10879 11134
1995 11 11367 11171 11397
1996 02 11539 11295 11531
1996 05 11436 11180 11379
1996 08 11668 11352 11568
1996 11 12095 11731 11994
1997 02 12175 11779 12101
1997 05 12314 11909 12156
1997 08 12603 12180 12468
1997 11 12810 12361 12719
1998 02 13113 12639 13022
1998 05 13216 12761 13136
1998 08 13528 13007 13418
1998 11 13766 13191 13647
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1998
------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Insured Intermediate-Term Tax-Exempt Fund 7.47% 6.97% $13,766
Average California Intermediate Tax-Exempt Fund 6.71 6.01 13,191
Lehman 7 Year Municipal Bond Index 7.30 6.78 13,647
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998*
- ----------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
California Insured Intermediate-Term Tax-Exempt Fund 3/4/1994 8.00% 2.17% 5.02% 7.19%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
12
<PAGE> 15
PERFORMANCE SUMMARY
CALIFORNIA INSURED LONG-TERM TAX-EXEMPT FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: APRIL 7, 1986-NOVEMBER 30, 1998
- ---------------------------------------------------------
CALIFORNIA INSURED LONG-TERM
TAX-EXEMPT FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1986 4.8% 4.6% 9.4% 9.4%
1987 -11.6 6.3 -5.3 -0.2
1988 4.9 7.3 12.2 10.6
1989 4.9 7.3 12.2 11.0
1990 0.3 6.8 7.1 7.7
1991 2.1 6.5 8.6 10.3
1992 4.4 6.4 10.8 10.0
1993 5.7 5.8 11.5 11.1
1994 -11.0 5.1 -5.9 -5.2
1995 13.6 6.5 20.1 18.9
1996 1.3 5.6 6.9 5.9
1997 1.1 5.4 6.5 7.2
1998 3.1 5.2 8.3 7.8
- --------------------------------------------------------
</TABLE>
*Lehman Municipal Bond Index.
See Financial Highlights table on page 36 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998
- -----------------------------------------------------------------------------------
CA Ins Long-Term Average CA Tax-Exempt Lehman Municipal
Tax-Exempt Fund Fund Bond Index
<S> <C> <C> <C>
1988 11 10000 10000 10000
1989 02 10325 10242 10194
1989 05 10851 10688 10627
1989 08 10880 10814 10811
1989 11 11217 11074 11101
1990 02 11269 11163 11239
1990 05 11433 11320 11404
1990 08 11378 11357 11505
1990 11 12010 11821 11956
1991 02 12223 12071 12275
1991 05 12478 12360 12554
1991 08 12773 12681 12861
1991 11 13044 12901 13182
1992 02 13359 13201 13500
1992 05 13692 13554 13786
1992 08 14204 14107 14296
1992 11 14453 14204 14504
1993 02 15545 15265 15358
1993 05 15545 15322 15435
1993 08 16106 16017 16041
1993 11 16119 15914 16111
1994 02 16272 16027 16208
1994 05 15835 15387 15817
1994 08 16103 15617 16069
1994 11 15172 14574 15270
1995 02 16741 16059 16519
1995 05 17400 16785 17263
1995 08 17419 16726 17495
1995 11 18223 17543 18157
1996 02 18447 17757 18345
1996 05 18054 17319 18052
1996 08 18504 17699 18412
1996 11 19482 18474 19224
1997 02 19482 18531 19355
1997 05 19730 18751 19547
1997 08 20275 19264 20115
1997 11 20753 19653 20603
1998 02 21303 20174 21125
1998 05 21539 20418 21380
1998 08 22076 20826 21855
1998 11 22482 21093 22202
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1998
------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Insured Long-Term Tax-Exempt Fund 8.31% 6.88% 8.44% $22,482
Average California Tax-Exempt Fund 7.33 5.80 7.75 21,093
Lehman Municipal Bond Index 7.76 6.62 8.30 22,202
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998*
- -------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
California Insured Long-Term
Tax-Exempt Fund 4/7/1986 9.48% 6.61% 2.49% 6.10% 8.59%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
13
<PAGE> 16
FUND PROFILE
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1998. Key elements of this Profile are defined on page 15.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------
<S> <C>
Yield 2.7%
Average Maturity 66 days
Average Quality MIG-1
Expense Ratio 0.20%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------
<S> <C>
MIG-1/SP-1+ 72.1%
A-1/P-1 20.0
AAA/AA 0.0
A 7.9
- ------------------------------------------------
Total 100.0%
</TABLE>
14
<PAGE> 17
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days (7 days for money market funds) and is annualized, or projected
forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
15
<PAGE> 18
FUND PROFILE
CALIFORNIA INSURED INTERMEDIATE-TERM TAX-EXEMPT FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 15.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
CALIFORNIA INSURED LEHMAN
INTERMEDIATE-TERM INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 281 47,383
Yield 3.9% 4.4%
Yield to Maturity 4.0% --
Average Coupon 5.4% 5.5%
Average Maturity 6.6 years 13.5 years
Average Quality AAA AA+
Average Duration 5.3 years 7.2 years
Expense Ratio 0.19% --
Cash Reserves 0.0% --
</TABLE>
*Lehman Municipal Bond Index.
INVESTMENT FOCUS
- -----------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
CALIFORNIA INSURED LEHMAN
INTERMEDIATE-TERM INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.91 1.00
Beta 0.82 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
AAA 98.0%
AA 2.0
A 0.0
BBB 0.0
BB 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
Under 1 Year 4.8%
1-5 Years 25.4
5-10 Years 55.2
10-20 Years 14.6
20-30 Years 0.0
Over 30 Years 0.0
- ------------------------------------------------------
Total 100.0%
</TABLE>
16
<PAGE> 19
FUND PROFILE
CALIFORNIA INSURED LONG-TERM TAX-EXEMPT FUND
This Profile provides a snapshot of the fund's characteristics as of November
30, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 15.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
CALIFORNIA INSURED LEHMAN
LONG-TERM INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Issues 206 47,383
Yield 4.3% 4.4%
Yield to Maturity 4.5% --
Average Coupon 5.4% 5.5%
Average Maturity 9.4 years 13.5 years
Average Quality AAA AA+
Average Duration 7.0 years 7.2 years
Expense Ratio 0.19% --
Cash Reserves 0.0% --
</TABLE>
*Lehman Municipal Bond Index.
INVESTMENT FOCUS
- ------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
CALIFORNIA INSURED LEHMAN
LONG-TERM INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.97 1.00
Beta 1.25 1.00
</TABLE>
*Lehman Municipal Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
AAA 95.7%
AA 4.3
A 0.0
BBB 0.0
BB 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
Under 1 Year 2.9%
1-5 Years 11.8
5-10 Years 26.6
10-20 Years 52.4
20-30 Years 6.3
Over 30 Years 0.0
- ------------------------------------------------------
Total 100.0%
</TABLE>
17
<PAGE> 20
FINANCIAL STATEMENTS
NOVEMBER 30, 1998
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's municipal bond holdings,
including each security's market value on the last day of the reporting period
and information on credit enhancements (insurance or letters of credit).
Securities are grouped and subtotaled according to their insured or noninsured
status. Other assets are added to, and liabilities are subtracted from, the
value of Total Municipal Bonds to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table
displaying the composition of the fund's net assets on both a dollar and
per-share basis. Undistributed Net Investment Income is usually zero because the
fund distributes its net income to shareholders as a dividend each day. Any
realized gains must be distributed annually, so the bulk of net assets consists
of Paid in Capital (money invested by shareholders). The balance shown for
Accumulated Net Realized Gains usually approximates the amount available to
distribute to shareholders as taxable capital gains as of the statement date,
but may differ because certain investments or transactions may be treated
differently for financial statement and tax purposes. Any Accumulated Net
Realized Losses, and any cumulative excess of distributions over net realized
gains, will appear as negative balances. Unrealized Appreciation (Depreciation)
is the difference between the value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (99.8%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alameda-Contra Costa CA School Financing Auth. COP VRDO
(Capital Improvement Financing Pooled Project) 2.50% 12/3/1998 LOC $ 20,160 $ 20,160
Anaheim CA Public Improvement Corp. Lease COP VRDO
(Refunding Project) 2.60% 12/2/1998 (2) 27,205 27,205
California Educ. Fac. Auth. Rev. VRDO
(California Institute of Technology) 2.65% 12/3/1998 9,200 9,200
California Educ. Fac. Auth. Rev. VRDO (Stanford Univ.) 2.45% 12/2/1998 5,000 5,000
California GO CP 2.85% 2/1/1999 40,000 40,000
California GO CP 2.90% 2/18/1999 10,000 10,000
California GO CP 3.00% 12/1/1998 7,300 7,300
California GO CP 3.00% 12/4/1998 24,800 24,800
California GO CP 3.10% 12/11/1998 7,400 7,400
California GO CP 3.15% 1/12/1999 10,100 10,100
California GO CP 3.25% 12/14/1998 24,000 24,000
California Health Fac. Finance Auth. Rev. VRDO
(Adventist Health System West Sutter Health) 2.50% 12/3/1998 LOC 3,200 3,200
California Health Fac. Finance Auth. Rev. VRDO
(Adventist Health System West Sutter Health) 2.70% 12/3/1998 LOC 16,900 16,900
California Health Fac. Finance Auth. Rev. TOB VRDO
(Catholic Health Care West) 3.15% 12/3/1998 (1) + 3,580 3,580
California Health Fac. Finance Auth. Rev. VRDO
(Catholic Health Care West) 2.75% 12/2/1998 (1) 52,800 52,800
California Health Fac. Finance Auth. Rev. VRDO
(Memorial Health Services) 2.80% 12/2/1998 10,600 10,600
California Health Fac. Finance Auth. Rev. VRDO (Pooled Program) 2.60% 12/2/1998 LOC 5,000 5,000
California Health Fac. Finance Auth. Rev. VRDO
(St. Francis Medical Center) 2.55% 12/2/1998 (1) 7,800 7,800
California Health Fac. Finance Auth. Rev. VRDO
(St. Francis Medical Center) 2.75% 12/2/1998 (1) 26,600 26,600
California Health Fac. Finance Auth. Rev. VRDO
(St. Joseph Health System Group) 3.00% 12/2/1998 10,450 10,450
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California PCR Finance Auth. CP (Pacific Gas & Electric Co.) 2.80% 3/8/1999 LOC $ 15,000 $ 15,000
California PCR Finance Auth. VRDO (Exxon Project) 3.15% 12/2/1998 6,500 6,500
California PCR Finance Auth. VRDO (Pacific Gas & Electric Co.) 3.25% 12/2/1998 LOC 1,200 1,200
California PCR Finance Auth. VRDO (Pacific Gas & Electric Co.) 3.30% 12/2/1998 LOC 9,965 9,965
California PCR Finance Auth. VRDO (Pacific Gas & Electric Co.) 3.35% 12/2/1998 28,170 28,170
California RAN 4.00% 6/30/1999 115,000 115,588
California School Fac. Financing Corp. COP VRDO 2.75% 12/2/1998 LOC 13,095 13,095
California Statewide Communities Dev. Auth. COP VRDO
(Memorial Health Services) 2.85% 12/2/1998 19,000 19,000
California Statewide Communities Dev. Auth. COP VRDO
(St. Joseph Health System Group) 3.00% 12/2/1998 18,100 18,100
Foothill CA Eastern Transp. Corridor Agency Toll Road Rev. VRDO 2.80% 12/3/1998 LOC 25,000 25,000
Fresno CA TRAN 4.00% 6/30/1999 10,000 10,024
Irvine CA Assessment Dist. Improvement Boards VRDO
(Northwest Irvine) 3.25% 12/2/1998 LOC 27,600 27,600
Irvine CA Assessment Dist. Improvement Boards VRDO
(Orange County-Irvine County) 2.50% 12/2/1998 LOC 50,023 50,023
Irvine CA Ranch Water Dist. VRDO 3.10% 12/2/1998 LOC 1,900 1,900
Irvine CA Ranch Water Dist. VRDO 3.25% 12/2/1998 LOC 6,100 6,100
Irvine CA Ranch Water Dist. VRDO (Consolidated Bonds Refunding) 3.25% 12/2/1998 LOC 800 800
Kern County CA VRDO (Public Fac. Project) 2.75% 12/2/1998 LOC 25,600 25,600
Los Angeles CA Community College Dist. TRAN 4.25% 7/29/1999 8,000 8,032
Los Angeles CA TRAN 4.00% 6/30/1999 55,000 55,132
Los Angeles CA TRAN 4.25% 6/30/1999 25,000 25,143
Los Angeles CA Unified School Dist. COP VRDO
(Belmont Learning Complex) 2.95% 12/2/1998 LOC 10,000 10,000
Los Angeles CA Waste Water Rev. CP 3.075% 3/8/1999 5,000 5,000
Los Angeles County CA Capital Asset Lease Rev. CP 2.80% 2/1/1999 LOC 4,000 4,000
Los Angeles County CA Capital Asset Lease Rev. CP 2.90% 2/18/1999 LOC 6,500 6,500
Los Angeles County CA Capital Asset Lease Rev. CP 3.00% 12/1/1998 LOC 3,000 3,000
Los Angeles County CA Capital Asset Lease Rev. CP 3.10% 12/17/1998 LOC 8,600 8,600
Los Angeles County CA Capital Asset Lease Rev. CP 3.15% 12/11/1998 LOC 5,000 5,000
Los Angeles County CA Dept. of Water & Power Electric Plant CP 2.90% 12/1/1998 LOC 12,000 12,000
Los Angeles County CA Dept. of Water & Power Electric Plant CP 3.00% 2/1/1999 LOC 12,000 12,000
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 8.00% 7/1/1999 (2) 5,445 5,579
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. CP 2.80% 3/11/1999 LOC 7,082 7,082
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. CP 2.95% 3/11/1999 LOC 7,900 7,900
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. VRDO 2.60% 12/2/1998 (3) 8,000 8,000
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. VRDO 2.80% 12/3/1998 (1) 37,200 37,200
Los Angeles County CA Pension Obligations VRDO 2.60% 12/2/1998 (2) 88,600 88,600
Los Angeles County CA Pooled Fin. Program Trust TOB VRDO 3.30% 12/2/1998 (4) + 90,380 90,380
Los Angeles County CA TRAN 4.50% 6/30/1999 4,000 4,038
MSR California Public Power Agency VRDO (San Juan Project) 3.25% 12/2/1998 (1) 20,000 20,000
Marin County CA TRAN 4.50% 6/30/1999 14,500 14,576
Metro. Water Dist. of Southern California CP 2.75% 3/9/1999 29,800 29,800
Metro. Water Dist. of Southern California VRDO 2.60% 12/3/1998 19,000 19,000
Oakland CA Joint Powers Financing Auth. Lease Rev. VRDO 2.90% 12/3/1998 (4) 20,000 20,000
Orange County CA Improvement Boards VRDO
(Irvine Coast Assessment Dist.) 3.25% 12/2/1998 LOC 600 600
Orange County CA Sanitation Dist. VRDO 2.80% 12/3/1998 (2) 25,826 25,826
Orange County CA Sanitation Dist. VRDO 3.25% 12/2/1998 LOC 1,700 1,700
Orange County CA Sanitation Dist. VRDO 3.25% 12/2/1998 (2) LOC 21,450 21,450
Otay CA Water Dist. COP VRDO (Capital Project) 2.75% 12/2/1998 LOC 8,800 8,800
Rancho Mirage CA Joint Powers Financing Auth. COP
(Eisenhower Medical Center) 2.95% 12/2/1998 (1) 25,100 25,100
Riverside County CA Public Fac. Project VRDO 2.75% 12/8/1998 LOC 14,400 14,400
Riverside County CA Public Fac. Project VRDO 2.80% 12/8/1998 LOC 6,220 6,220
Riverside County CA TRAN 4.50% 9/30/1999 9,400 9,499
Sacramento CA Board of Educ. TOB VRDO 3.30% 12/2/1998 + 50,000 50,000
Sacramento County CA VRDO
(Administration Center & Courthouse Project) 2.45% 12/3/1998 LOC 27,310 27,310
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
San Bernardino County CA COP VRDO
(County Center Refinancing Project) 2.65% 12/2/1998 LOC $ 8,800 $ 8,800
San Bernardino County CA TRAN 4.50% 9/30/1999 9,600 9,695
San Diego CA TAN 4.50% 9/30/1999 12,500 12,632
San Diego CA Unified School Dist. TRAN 4.50% 10/1/1999 49,750 50,322
San Diego County CA TRAN 4.50% 9/30/1999 20,000 20,210
San Francisco City and County CA Unified School Dist. TRAN 4.50% 9/22/1999 11,000 11,095
San Jose CA Redev. Agency Rev. VRDO
(Merged Area Redev. Project) 2.50% 12/2/1998 LOC 7,300 7,300
San Jose/Santa Clara CA Clean Water & Sewer Finance Auth. VRDO 2.60% 12/2/1998 (3) 3,700 3,700
San Jose CA Unified School Dist. TRAN 3.50% 10/19/1999 22,000 22,100
Santa Barbara County CA TRAN 4.50% 10/1/1999 10,500 10,607
Santa Clara CA El Camino Hosp. Dist. Fac. Auth. Rev. Lease VRDO
(Valley Medical Center Project) 2.50% 12/8/1998 LOC 26,800 26,800
Santa Rosa County CA School Dist. TRAN 4.50% 10/1/1999 12,500 12,626
Southern California Public Power Auth. VRDO
(Southern Transmission Project) 2.60% 12/2/1998 (2) LOC 151,700 151,700
Southern California Public Power Auth. VRDO
(Southern Transmission Project) 2.65% 12/2/1998 (4) 30,265 30,265
Torrance CA Little Co. of Mary Hosp. VRDO
(Torrance Memorial Medical Center) 2.90% 12/3/1998 LOC 3,000 3,000
Tulare County CA TRAN 4.25% 6/30/1999 17,000 17,063
Turlock CA Irrigation Dist. COP VRDO (Transmission Project) 2.50% 12/2/1998 LOC 6,990 6,990
Ventura County CA CP 2.85% 2/8/1999 LOC 12,000 12,000
Wateruse Financial Auth. of California VRDO 2.60% 12/2/1998 (3) 100,000 100,000
West Basin CA Muni. Water Dist. Rev. COP VRDO
(Phase II Recycled Water Project) 2.50% 12/2/1998 LOC 26,400 26,400
West Basin CA Muni. Water Dist. Rev. COP VRDO
(Phase II Recycled Water Project) 2.55% 12/2/1998 LOC 10,000 10,000
OUTSIDE CALIFORNIA:
Puerto Rico TRAN 3.50% 7/30/1999 ++ 18,000 18,076
Puerto Rico Govt. Bank VRDO 2.90% 12/2/1998 (1) 2,000 2,000
- -------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,966,608) 1,966,608
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 26,911
Liabilities (23,293)
----------
3,618
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 1,970,143,898 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,970,226
=========================================================================================================================
NET ASSET VALUE PER SHARE $1.00
=========================================================================================================================
*See Note A in Notes to Financial Statements.
+Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At November 30, 1998, the
aggregate value of these securities was $143,960,000, representing 7.3% of net
assets.
For key to abbreviations and other references, see page 31.
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,970,284 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (58) --
Unrealized Appreciation -- --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,970,226 $1.00
=========================================================================================================================
</TABLE>
20
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
CALIFORNIA INSURED MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (101.2%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (97.4%)
Alameda County CA COP 5.00% 6/1/2006 (2) $ 3,010 $ 3,199
Alameda County CA COP (Medical Center Project) 5.25% 6/1/2008 (1) 1,965 2,125
Alameda County CA COP (Medical Center Project) 5.25% 6/1/2009 (1) 2,910 3,147
Alameda County CA COP (Medical Center Project) 5.25% 6/1/2010 (1) 3,065 3,288
Alameda County CA COP (Medical Center Project) 5.25% 6/1/2011 (1) 1,615 1,721
Alameda County CA COP (Medical Center Project) 5.25% 6/1/2012 (1) 1,595 1,690
Alameda County CA COP (Medical Center Project) 5.25% 6/1/2013 (1) 1,785 1,879
Alameda County CA COP (Medical Center Project) 5.375% 6/1/2014 (1) 1,880 1,991
Alameda County CA COP (Medical Center Project) 5.375% 6/1/2015 (1) 3,960 4,176
Anaheim CA Convention Center Finance COP 0.00% 8/1/2004 (1) 3,120 2,498
Anaheim CA Public Finance Auth. Rev. COP 6.00% 9/1/2008 (4) 2,000 2,306
Anaheim CA Public Improvement Corp. Lease COP VRDO
(Refunding Project) 2.60% 12/2/1998 (2) 1,600 1,600
California GO 6.50% 3/1/2002 (2) 5,570 6,064
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 5.50% 7/1/2008 (1) 3,290 3,636
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 5.50% 7/1/2009 (1) 3,580 3,952
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 5.50% 7/1/2010 (1) 3,060 3,361
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 5.50% 7/1/2011 (1) 3,950 4,324
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 5.50% 7/1/2012 (1) 3,635 3,960
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 5.75% 7/1/2010 (1) 7,000 7,747
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 5.875% 7/1/2009 (2) 5,000 5,538
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 7.00% 7/1/2005 (2) 3,410 3,995
California Health Fac. Finance Auth. Rev.
(Catholic Health Care West) 7.00% 7/1/2006 (2) 3,395 4,034
California Health Fac. Finance Auth. Rev. (Children's Hosp.) 6.00% 7/1/2001 (1) 1,600 1,696
California Health Fac. Finance Auth. Rev. (Children's Hosp.) 6.00% 7/1/2002 (1) 1,280 1,380
California Health Fac. Finance Auth. Rev. (Children's Hosp.) 6.00% 7/1/2004 (1) 1,645 1,821
California Health Fac. Finance Auth. Rev. (Children's Hosp.) 6.00% 7/1/2006 (1) 1,000 1,130
California Health Fac. Finance Auth. Rev. (Kaiser Permanente) 5.25% 6/1/2009 (4) 6,290 6,802
California Health Fac. Finance Auth. Rev. (Kaiser Permanente) 5.25% 6/1/2010 (4) 5,310 5,719
California Health Fac. Finance Auth. Rev. (Kaiser Permanente) 5.25% 6/1/2011 (4) 7,250 7,748
California Health Fac. Finance Auth. Rev. (Mills Peninsula) 6.00% 1/15/2000 (6) 1,080 1,112
California Health Fac. Finance Auth. Rev. (Pomona Valley Hosp.) 5.50% 7/1/2002 (1) 2,500 2,652
California Health Fac. Finance Auth. Rev. (Pomona Valley Hosp.) 5.50% 7/1/2003 (1) 3,010 3,227
California Health Fac. Finance Auth. Rev. (Pomona Valley Hosp.) 5.50% 7/1/2004 (1) 2,750 2,969
California Health Fac. Finance Auth. Rev. (Pomona Valley Hosp.) 5.50% 7/1/2010 (1) 3,570 3,889
California Health Fac. Finance Auth. Rev. (Pomona Valley Hosp.) 5.75% 7/1/2005 (1) 3,335 3,676
California Health Fac. Finance Auth. Rev. (Pomona Valley Hosp.) 5.75% 7/1/2006 (1) 3,415 3,779
California Health Fac. Finance Auth. Rev. (Presbyterian Hosp.) 5.25% 5/1/2001 (1) 1,500 1,558
California Health Fac. Finance Auth. Rev. (Presbyterian Hosp.) 5.25% 5/1/2002 (1) 1,000 1,050
California Health Fac. Finance Auth. Rev. (Presbyterian Hosp.) 5.25% 5/1/2003 (1) 1,000 1,061
California Health Fac. Finance Auth. Rev. (Presbyterian Hosp.) 5.50% 5/1/2004 (1) 1,855 2,001
California Health Fac. Finance Auth. Rev. (Presbyterian Hosp.) 5.50% 5/1/2005 (1) 1,500 1,632
California Health Fac. Finance Auth. Rev. (Scripps Memorial Hosp.) 6.25% 10/1/2013 (1) 3,000 3,245
California Health Fac. Finance Auth. Rev. (Sisters of Providence) 6.00% 10/1/2009 (2) 4,490 5,196
California Health Fac. Finance Auth. Rev. (Summit Medical Center) 5.25% 5/1/2009 (4) 3,500 3,772
California Health Fac. Finance Auth. Rev. (Summit Medical Center) 5.25% 5/1/2011 (4) 1,700 1,805
California Health Fac. Finance Auth. Rev. (Sutter Health) 5.50% 8/15/2012 (4) 3,000 3,271
California Health Fac. Finance Auth. Rev.
(UCSF-Stanford Health Care) 5.00% 11/15/2009 (2) 2,500 2,656
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
CALIFORNIA INSURED MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Health Fac. Finance Auth. Rev.
(UCSF-Stanford Health Care) 5.00% 11/12/2010 (2) $ 1,000 $ 1,055
California Health Fac. Finance Auth. Rev.
(UCSF-Stanford Health Care) 5.00% 11/15/2011 (2) 2,000 2,094
California Public Works Board 6.50% 12/1/2008 (2) 5,000 5,986
California Public Works Board (Dept. of Corrections) 5.50% 1/1/2010 (2) 10,000 10,945
California Public Works Board (Dept. of Corrections) 5.50% 1/1/2014 (2) 5,975 6,407
California Public Works Board (Dept. of Corrections) 6.40% 11/1/2001 (1)(Prere.) 5,000 5,786
California Public Works Board (Dept. of Corrections) 6.60% 12/1/2002 (2)(Prere.) 3,500 3,956
California Public Works Board (Univ. of California) 5.50% 9/1/2008 (2) 5,185 5,763
California Public Works Board (Univ. of California) 5.50% 9/1/2009 (2) 4,015 4,453
California Public Works Board (Univ. of California) 6.25% 12/1/2002 (2)(Prere.) 1,000 1,117
Capistrano CA Unified Public Schools 6.00% 9/1/2004 (2) 2,160 2,405
Capistrano CA Unified Public Schools 6.00% 9/1/2005 (2) 2,395 2,694
Central Coast CA Water Auth. Rev. 6.05% 10/1/2002 (2)(Prere.) 1,800 1,990
Central Coast CA Water Auth. Rev. 6.25% 10/1/2002 (2)(Prere.) 2,000 2,225
Chino CA Basin Finance Auth. Muni. Water Dist. 6.50% 8/1/2010 (2) 3,095 3,727
Clovis CA Unified School Dist. 0.00% 8/1/2004 (3)(ETM) 5,000 4,003
Clovis CA Unified School Dist. 0.00% 8/1/2005 (3) 16,000 12,238
Clovis CA Unified School Dist. 0.00% 8/1/2006 (3) 17,000 12,425
Contra Costa CA (Merrithew Memorial Hosp.) 5.25% 11/1/2001 (1) 3,000 3,139
Contra Costa CA (Merrithew Memorial Hosp.) 5.25% 11/1/2003 (1) 3,230 3,446
Contra Costa CA (Merrithew Memorial Hosp.) 6.00% 11/1/2006 (1) 2,000 2,263
Contra Costa CA (Merrithew Memorial Hosp.) 6.00% 11/1/2007 (1) 2,000 2,278
Corona CA Community Fac. Dist. 4.35% 9/1/2001 (1) 1,755 1,798
Corona CA Community Fac. Dist. 4.45% 9/1/2002 (1) 1,830 1,889
Corona CA Community Fac. Dist. 4.50% 9/1/2003 (1) 1,510 1,567
Corona CA Community Fac. Dist. 4.55% 9/1/2004 (1) 1,495 1,559
Corona CA Redev. Project 7.50% 9/1/2004 (3) 970 1,153
Corona CA Redev. Project 7.50% 9/1/2005 (3) 1,040 1,247
Culver City CA Redev. Finance Auth. 6.75% 11/1/1999 (2)(Prere.) 2,500 2,635
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 5.00% 6/1/2014 (3) 3,850 3,956
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.375% 12/1/2001 (2)(Prere.) 4,000 4,402
East Whittier CA City School Dist. 5.75% 8/1/2017 (3) 1,670 1,866
El Dorado County CA Public Agency Finance Auth. Rev. 5.50% 2/15/2021 (3) 2,420 2,552
El Dorado County CA Public Agency Finance Auth. Rev. 5.60% 2/15/2012 (3) 3,900 4,266
Elsinore Valley CA Muni. Water Dist. COP 5.90% 7/1/2006 (3) 1,685 1,902
Fresno CA COP (City Hall Refinancing Project) 6.375% 8/1/2010 (2) 10,500 11,181
Glendale CA School Dist. 5.75% 9/1/2017 (3) 3,790 4,175
La Quinta CA Redev. Agency (Tax Allocation Project) 7.30% 9/1/2007 (1) 1,240 1,522
La Quinta CA Redev. Agency (Tax Allocation Project) 8.00% 9/1/2003 (1) 1,325 1,564
Long Beach CA Financing Auth. Rev. 6.00% 11/1/2007 (2) 3,070 3,527
Long Beach CA Financing Auth. Rev. 6.00% 11/1/2009 (2) 3,735 4,326
Long Beach CA Financing Auth. Rev. 6.00% 11/1/2010 (2) 3,860 4,483
Los Angeles CA Dev. Auth. COP (Children's Hosp.) 6.00% 6/1/2011 (1) 2,365 2,721
Los Angeles CA Transp. Comm. Sales Tax Rev. 6.25% 7/1/2013 (1) 1,500 1,662
Los Angeles CA Unified School Dist. COP 5.00% 11/1/2012 (4) 3,510 3,674
Los Angeles CA Unified School Dist. GO 5.375% 7/1/2014 (3) 7,000 7,479
Los Angeles CA Unified School Dist. GO 5.375% 7/1/2015 (3) 3,000 3,186
Los Angeles CA Unified School Dist. GO 5.375% 7/1/2016 (3) 4,000 4,232
Los Angeles CA Waste Water 5.75% 6/1/2011 (1) 7,960 8,679
Los Angeles CA Waste Water 6.50% 6/1/2004 (1)(Prere.) 1,695 1,955
Los Angeles CA Waste Water 8.70% 11/1/2002 (3) 2,535 2,999
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.25% 7/1/2008 (4) ++ 6,155 6,576
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.25% 7/1/2010 (4) ++ 7,070 7,573
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.40% 7/1/2009 (2) 1,725 1,879
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.50% 7/1/2017 (2) 1,500 1,587
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 9.00% 7/1/2005 (1) 4,015 5,181
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 9.00% 7/1/2006 (1) 4,380 5,787
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 9.00% 7/1/2007 (1) 4,770 6,447
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Los Angeles County CA Public Works Finance Auth. Rev. 4.10% 3/1/2000 (4) $ 5,000 $ 5,057
Los Angeles County CA Public Works Finance Auth. Rev. 5.25% 9/1/2012 (1) 6,345 6,738
MSR California Public Power Agency (San Juan Project) 5.375% 7/1/2013 (1) 2,500 2,677
MSR California Public Power Agency (San Juan Project) 5.375% 7/1/2014 (1) 3,000 3,197
MSR California Public Power Agency (San Juan Project) 5.50% 7/1/2001 (1) 6,500 6,830
MSR California Public Power Agency (San Juan Project) 5.85% 7/1/2006 (2) 1,500 1,645
Modesto CA Irrigation Dist. Finance Auth. Rev. 4.25% 9/1/1999 (2) 550 555
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.00% 9/1/2004 (2) 1,255 1,334
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.00% 9/1/2009 (2) 1,130 1,209
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.00% 9/1/2010 (2) 2,000 2,125
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.00% 9/1/2011 (2) 1,790 1,887
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.00% 9/1/2012 (2) 1,630 1,705
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.125% 9/1/2015 (2) 4,365 4,535
Modesto CA Irrigation Dist. Finance Auth. Rev. 5.25% 9/1/2005 (2) 1,000 1,082
Mountain View CA Capital Improvement Finance Auth. 6.25% 8/1/2012 (1) 5,000 5,405
North City West CA Community Dist. 5.75% 9/1/2015 (4) 2,000 2,197
North City West CA Community Dist. 6.00% 9/1/2005 (4) 1,510 1,698
North City West CA Community Dist. 6.00% 9/1/2006 (4) 1,600 1,815
North City West CA Community Dist. 6.00% 9/1/2007 (4) 1,695 1,939
Oakland CA Building Auth. Lease Rev. (Harris Building) 5.25% 4/1/2009 (2) 5,235 5,695
Oakland CA Redev. Agency (Central Dist. Project) 6.00% 2/1/2006 (2) 5,125 5,778
Oakland CA Redev. Agency (Central Dist. Project) 6.00% 2/1/2007 (2) 3,360 3,824
Oakland CA Redev. Agency (Central Dist. Project) 6.00% 2/1/2008 (2) 5,585 6,398
Orange County CA Airport Rev. Refunding Bond 5.50% 7/1/2004 (1) 3,555 3,840
Orange County CA Airport Rev. Refunding Bond 6.00% 7/1/2001 (1) 7,245 7,680
Orange County CA Airport Rev. Refunding Bond 6.00% 7/1/2005 (1) 4,020 4,486
Orange County CA Airport Rev. Refunding Bond 6.00% 7/1/2006 (1) 4,565 5,125
Orange County CA Local Transp. Auth. Sales Tax Rev. 5.25% 2/15/2004 (1) 10,590 11,324
Orange County CA Local Transp. Auth. Sales Tax Rev. 5.25% 2/15/2005 (1) 10,260 11,040
Orange County CA Local Transp. Auth. Sales Tax Rev. 5.80% 2/15/2005 (3) 6,000 6,637
Orange County CA Local Transp. Auth. Sales Tax Rev. 5.90% 2/15/2006 (3) 8,000 8,968
Orange County CA Local Transp. Auth. Sales Tax Rev. 9.50% 2/15/2003 (3) 5,765 7,041
Orange County CA Sanitation Dist. COP 6.00% 8/1/2001 (3)(Prere.)+ 1,500 1,624
Orange County CA Sanitation Dist. COP 6.40% 8/1/2007 (3) 1,415 1,540
Pittsburg CA Redev. Agency Rev. 5.50% 8/1/2007 (3) 5,750 6,145
Poway CA Redev. Agency 7.25% 12/15/2011 (3) 7,500 8,055
Poway CA Unified School Dist. Fac. 5.00% 10/1/2003 (1) 2,670 2,826
Poway CA Unified School Dist. Fac. 5.00% 10/1/2004 (1) 2,925 3,112
Poway CA Unified School Dist. Fac. 5.00% 10/1/2005 (1) 3,190 3,407
Poway CA Unified School Dist. Fac. 5.00% 10/1/2006 (1) 1,775 1,899
Poway CA Unified School Dist. Fac. 5.00% 10/1/2007 (1) 3,775 4,051
Poway CA Unified School Dist. Fac. 5.00% 10/1/2008 (1) 4,045 4,337
Poway CA Unified School Dist. Fac. 5.00% 10/1/2009 (1) 2,435 2,605
Rancho CA Water Dist. Finance Auth. Rev. 5.875% 11/1/2010 (3) 3,000 3,350
Rancho CA Water Dist. Finance Auth. Rev. 6.25% 8/1/2012 (3) 1,950 2,108
Rancho CA Water Dist. Finance Auth. Rev. 6.50% 11/1/2001 (3) 1,590 1,723
Rancho Cucamonga CA Redev. Auth. 5.00% 9/1/2011 (1) 3,165 3,324
Riverside CA Electric Refunding Rev. 5.00% 10/1/2005 (2) 3,500 3,727
Riverside CA Electric Refunding Rev. 5.375% 10/1/2009 (2) 4,115 4,511
Riverside County CA Public Finance 5.25% 9/1/2003 (1) 2,210 2,364
Sacramento CA Cogeneration Project Refunding Rev. 5.25% 7/1/2011 (1) 4,730 5,042
Sacramento CA Muni. Util. Dist. Rev. 5.00% 7/1/2000 (2) 8,500 8,732
Sacramento CA Muni. Util. Dist. Rev. 5.75% 1/1/2010 (1) 5,000 5,481
Sacramento CA Muni. Util. Dist. Rev. 6.20% 8/15/2005 (1) 2,000 2,205
Sacramento CA Muni. Util. Dist. Rev. 6.25% 8/15/2007 (1) 8,000 8,834
Sacramento CA Redev. Agency (Merged Downtown Project) 5.25% 11/1/2010 (4) 3,895 4,245
Sacramento CA Redev. Agency (Merged Downtown Project) 6.75% 11/1/2005 (1) 1,000 1,081
Sacramento CA Redev. Agency (Tax Allocation Project) 6.50% 11/1/2000 (1)(Prere.) 1,775 1,914
Sacramento CA Redev. Agency (Tax Allocation Project) 6.50% 11/1/2013 (1) 225 241
Sacramento County CA Public Fac. Finance Corp. COP
(Main Detention Fac. Project) 5.50% 6/1/2010 (1) 5,500 6,115
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
CALIFORNIA INSURED MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
San Bernardino County CA COP (Medical Center Financing Project) 4.30% 8/1/2000 (1) $ 6,000 $ 6,092
San Bernardino County CA COP (Medical Center Financing Project) 4.40% 8/1/2001 (1) 9,500 9,703
San Bernardino County CA COP (Medical Center Financing Project) 4.50% 8/1/2002 (1) 8,000 8,231
San Bernardino County CA COP (Medical Center Financing Project) 5.00% 8/1/2003 (1) 2,500 2,633
San Bernardino County CA COP (Medical Center Financing Project) 5.50% 8/1/2006 (1) 8,500 9,323
San Bernardino County CA COP (Medical Center Financing Project) 5.50% 8/1/2007 (1) 6,000 6,607
San Diego CA Water Util. Rev. 5.25% 8/1/2009 (3) 2,000 2,165
San Diego CA Water Util. Rev. 5.375% 8/1/2010 (3) 6,000 6,506
San Diego CA Water Util. Rev. 5.375% 8/1/2012 (3) 2,000 2,144
San Diego CA Financing Auth. Lease Rev.
(Convention Center Expansion) 5.25% 4/1/2011 (2) 5,150 5,543
San Diego CA Financing Auth. Lease Rev.
(Convention Center Expansion) 5.25% 4/1/2012 (2) 3,000 3,206
San Diego CA Public Fac. Financing Auth. Sewer Rev. 5.00% 5/15/2008 (3) 1,000 1,072
San Diego CA Public Fac. Financing Auth. Sewer Rev. 5.00% 5/15/2009 (3) 1,240 1,322
San Diego CA Public Fac. Financing Auth. Sewer Rev. 5.10% 5/15/2010 (3) 2,770 2,953
San Diego CA Unified School Dist. COP 5.375% 7/1/2002 (1) 10,835 11,495
San Diego CA Unified School Dist. COP 5.375% 7/1/2003 (1) 10,435 11,193
San Diego County CA Regional Transp. Comm. 6.00% 4/1/2004 (2) 3,000 3,322
San Diego County CA Regional Transp. Comm. 6.00% 4/1/2007 (2) 3,000 3,422
San Diego County CA Regional Transp. Comm. 6.25% 4/1/2002 (3) 5,000 5,416
San Francisco CA Airport Comm. Rev. 5.25% 5/1/2012 (4) 2,250 2,406
San Francisco CA Airport Comm. Rev. 5.50% 5/1/2009 (4) 5,025 5,533
San Francisco CA Airport Comm. Rev. 5.50% 5/1/2010 (4) 5,300 5,808
San Francisco CA Airport Comm. Rev. 5.50% 5/1/2011 (4) 2,135 2,351
San Francisco CA Airport Comm. Rev. 6.20% 5/1/2007 (2) 1,615 1,771
San Francisco CA Airport Comm. Rev. 6.50% 5/1/2013 (2) 2,160 2,380
San Francisco CA Bay Area Rapid Transit Rev. 5.55% 7/1/2009 (3) 4,920 5,322
San Francisco CA City & County Airport Rev. 5.50% 5/1/2010 (3) 2,880 3,134
San Francisco CA City & County Airport Rev. 5.50% 5/1/2011 (3) 3,080 3,341
San Francisco CA City & County Airport Rev. 6.30% 5/1/2011 (2) 1,085 1,188
San Francisco CA City & County Airport Rev. 6.40% 5/1/2005 (1) 2,800 3,140
San Francisco CA City & County Airport Rev. 6.60% 5/1/2007 (1) 1,000 1,129
San Francisco CA City & County GO 4.00% 6/15/2000 (3) 7,970 8,063
San Francisco CA County Sewer Rev. 6.00% 10/1/2011 (2) 2,000 2,183
San Joaquin County CA COP (Human Services Project) 6.70% 5/15/1999 (5)(Prere.) 5,300 5,496
San Joaquin Hills CA Transp. Corridor Agency Toll Road Rev. 0.00% 1/15/2003 (1) 6,000 5,125
San Jose CA Redev. Agency (Merged Area Redev. Project) 5.375% 8/1/1999 (1) 1,945 1,977
San Jose CA Redev. Agency (Merged Area Redev. Project) 5.375% 8/1/2000 (1) 2,045 2,116
San Jose CA Redev. Agency (Merged Area Redev. Project) 5.375% 8/1/2001 (1) 2,165 2,271
San Jose CA Redev. Agency (Merged Area Redev. Project) 5.375% 8/1/2002 (1) 2,270 2,411
San Jose CA Redev. Agency (Merged Area Redev. Project) 6.00% 8/1/2006 (1) 1,000 1,135
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2006 (3) 3,750 2,750
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2007 (3) 4,950 3,456
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2008 (3) 6,050 4,012
Santa Ana CA Finance Auth. Rev. 5.375% 9/1/2009 (1) 3,040 3,324
Santa Ana CA Finance Auth. Rev. 5.375% 9/1/2010 (1) 1,600 1,745
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/1999 (2) 1,645 1,656
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/2000 (2) 2,075 2,134
Santa Barbara CA Redev. Agency (Central City Project) 5.50% 3/1/2001 (2) 2,215 2,314
Santa Clara County CA Financing Auth. Lease Rev. 5.50% 5/15/2011 (2) ++ 4,535 4,753
Santa Clara County CA Financing Auth. Lease Rev. 5.50% 5/15/2012 (2) ++ 4,785 4,968
Santa Margarita/Dana Point CA Auth. Rev. 5.50% 8/1/2008 (2) 3,345 3,687
Santa Margarita/Dana Point CA Auth. Rev. 5.50% 8/1/2009 (2) 3,860 4,251
Santa Margarita/Dana Point CA Auth. Rev. 5.50% 8/1/2010 (2) 2,245 2,461
Santa Margarita/Dana Point CA Auth. Rev. 7.25% 8/1/2006 (1) 3,315 4,022
Santa Margarita/Dana Point CA Auth. Rev. 7.25% 8/1/2010 (1) 2,180 2,773
Santa Margarita/Dana Point CA Auth. Rev. 7.25% 8/1/2011 (1) 1,640 2,098
Santa Rosa CA Waste Water Service Fac. Dist. 6.20% 7/2/2009 (2) 2,450 2,689
South Orange County CA Public Finance Auth. 5.25% 8/15/2013 (2) 2,290 2,438
South Orange County CA Public Finance Auth. 6.25% 8/15/1999 (3) 2,000 2,046
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South Orange County CA Public Finance Auth. 7.00% 9/1/2005 (1) $ 3,440 $ 4,043
South Orange County CA Public Finance Auth. 7.00% 9/1/2007 (1) 1,000 1,216
South Orange County CA Public Finance Auth. 7.00% 9/1/2008 (1) 2,875 3,529
South Orange County CA Public Finance Auth. 7.00% 9/1/2009 (1) 5,000 6,211
South Orange County CA Public Finance Auth. 7.00% 9/1/2010 (1) 3,300 4,129
South Orange County CA Public Finance Auth. 9.50% 8/15/2004 (1) 4,395 5,659
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/1999 (2)(Prere.) 435 445
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/2007 (2) 865 885
Southern California Rapid Transit Dist. 5.80% 9/1/2006 (2) 4,000 4,498
Southern California Rapid Transit Dist. 5.90% 9/1/2007 (2) 3,155 3,598
Southern California Rapid Transit Dist. 6.00% 9/1/2008 (2) 2,650 2,906
Sweetwater CA Water Rev. 7.00% 4/1/2010 (2) 1,950 2,013
Tri-City CA Hosp. Dist. 5.50% 2/15/2008 (1) 3,805 4,176
Tri-City CA Hosp. Dist. 5.50% 2/15/2009 (1) 2,665 2,911
Tri-City CA Hosp. Dist. 5.625% 2/15/2011 (1) 2,970 3,240
Tri-City CA Hosp. Dist. 5.625% 2/15/2012 (1) 1,880 2,043
Tulare County CA COP 5.00% 8/15/2009 (1) 3,880 4,114
Tulare County CA COP 5.70% 11/15/2003 (1) 1,000 1,093
Tulare County CA COP 5.80% 11/15/2004 (1) 1,000 1,109
Tustin CA Unified School Dist. Special Tax 5.00% 9/1/2011 (4) 2,070 2,177
Tustin CA Unified School Dist. Special Tax 5.00% 9/1/2013 (4) 2,540 2,634
Univ. of California Rev. (Medical Center) 5.625% 7/1/2010 (2) 6,660 7,274
Univ. of California Rev. (Multiple Purpose Project) 6.00% 9/1/2002 (1)(Prere.) 1,500 1,654
Univ. of California Rev. (Multiple Purpose Project) 10.00% 9/1/2002 (1) 2,950 3,601
Univ. of California Rev. (Multiple Purpose Project) 10.00% 9/1/2002 (2) 1,000 1,221
Univ. of California Rev. (Multiple Purpose Project) 10.00% 9/1/2003 (2) 2,000 2,540
Univ. of California Rev. (Multiple Purpose Project) 12.00% 9/1/2003 (2) 2,000 2,710
Univ. of California Research Fac. Rev. 5.00% 9/1/2008 (4) 4,290 4,584
Univ. of California Research Fac. Rev. 5.00% 9/1/2009 (4) 4,510 4,791
Univ. of California Research Fac. Rev. 5.00% 9/1/2010 (4) 4,730 4,993
Visalia CA Waste Water System Rev. 6.00% 12/1/2007 (1) 1,000 1,150
West Basin CA Water Dist. 6.80% 8/1/2000 (2)(Prere.) 2,000 2,152
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2000 (1) 1,895 1,969
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2003 (1) 3,380 3,695
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2004 (1) 3,580 3,958
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.00% 6/1/2005 (1) 3,675 4,110
OUTSIDE CALIFORNIA:
Guam Govt. Ltd. Obligation Infrastructure Improvement Rev. 4.75% 11/1/2000 (2) 2,020 2,070
Guam Govt. Ltd. Obligation Infrastructure Improvement Rev. 5.00% 11/1/2001 (2) 2,410 2,503
Guam Govt. Ltd. Obligation Infrastructure Improvement Rev. 5.25% 11/1/2003 (2) 1,635 1,742
Puerto Rico Govt. Dev. Bank VRDO 2.90% 12/2/1998 (1) 2,000 2,000
----------
980,275
----------
NONINSURED (3.8%)
California Dept. of Water Resources (Central Valley Project) 5.125% 12/1/2013 2,000 2,106
California Dept. of Water Resources (Central Valley Project) 5.125% 12/1/2015 1,410 1,467
California Dept. of Water Resources (Central Valley Project) 5.125% 12/1/2016 1,000 1,035
California Educ. Fac. Auth. Rev.
(Univ. of Southern California Project) 5.60% 10/1/2009 2,680 3,002
California PCR Financing Auth. VRDO (Pacific Gas & Electric Co.) 3.30% 12/2/1998 LOC 3,035 3,035
Chula Vista CA IDR VRDO
(San Diego Gas & Electric) 3.10% 12/2/1998 600 600
Irvine CA Assessment Dist. VRDO 3.25% 12/2/1998 LOC 500 500
Irvine CA Assessment Dist. VRDO 3.25% 12/2/1998 LOC 700 700
Kern County CA TRAN 4.25% 10/1/1999 5,000 5,049
San Diego CA Unified School Dist. COP 5.25% 7/1/2001 11,265 11,728
Santa Monica-Malibu CA Unified School Dist. GO 5.25% 8/1/2011 3,695 4,016
OUTSIDE CALIFORNIA:
Puerto Rico TRAN 3.50% 7/30/1999 5,000 5,023
----------
38,261
----------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $976,424) 1,018,536
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
CALIFORNIA INSURED VALUE*
INTERMEDIATE-TERM TAX-EXEMPT FUND (000)
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.2%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note B 22,854
Payables for Investment Securities Purchased (33,155)
Other Liabilities (2,142)
----------
(12,443)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 91,891,063 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,006,093
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.95
=========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Securities with a value of $1,083,000 have been segregated as initial margin
for open futures contracts.
For key to abbreviations and other references, see page 31.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 966,687 $10.52
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (2,501) (.03)
Unrealized Appreciation (Depreciation)--Notes E and F
Investment Securities 42,112 .46
Futures Contracts (205) --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,006,093 $10.95
=========================================================================================================================
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
CALIFORNIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (102.0%)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISSUER INSURED (92.1%)
Anaheim CA Convention Center Finance COP 0.00% 8/1/2005 (1) $ 1,250 $ 956
Anaheim CA Convention Center Finance COP 0.00% 8/1/2006 (1) 3,125 2,284
Anaheim CA Convention Center Finance COP 5.50% 8/1/2014 (1) 5,750 6,133
Anaheim CA Public Improvement Corp. Lease COP VRDO
(Refunding Project) 2.60% 12/2/1998 (2) 4,375 4,375
Barstow CA Redev. Agency 6.25% 9/1/2022 (1) 2,225 2,497
California GO 5.25% 10/1/2014 (3) 15,610 16,401
California GO 6.00% 8/1/2019 (3) 210 232
California GO 7.00% 11/1/2004 (3)(Prere.) 1,935 2,299
California GO 7.00% 11/1/2013 (3) 65 76
California Dept. of Veteran Affairs 5.45% 12/1/2019 (2) 20,000 20,794
California Health Fac. Finance Auth. Rev. (Adventist Health System) 6.75% 3/1/2011 (1) 5,000 5,396
California Health Fac. Finance Auth. Rev. (Catholic Health Care West) 5.75% 7/1/2015 (2) 4,080 4,409
California Health Fac. Finance Auth. Rev. (Catholic Health Care West) 6.00% 7/1/2017 (1) 27,900 30,715
California Health Fac. Finance Auth. Rev. (Kaiser Permanente) 5.00% 6/1/2024 (4) 15,000 15,000
California Health Fac. Finance Auth. Rev. (Little Company of Mary) 5.00% 10/1/2020 (2) 15,655 15,682
California Health Fac. Finance Auth. Rev. (San Diego Hosp.) 6.20% 8/1/2020 (1) 3,820 4,170
California Health Fac. Finance Auth. Rev. (San Diego Hosp.) 6.625% 5/1/1999 (1)(Prere.) 6,525 6,690
California Health Fac. Finance Auth. Rev. (Scripps Health) 5.00% 10/1/2018 (1) 7,355 7,400
California Health Fac. Finance Auth. Rev. (Scripps Health) 5.00% 10/1/2022 (1) 5,760 5,760
California Health Fac. Finance Auth. Rev.
(UCSF-Stanford Health Care) 5.00% 11/15/2018 (2) 10,000 10,062
California Health Fac. Finance Auth. Rev. VRDO
(Catholic Health Care West) 2.75% 12/2/1998 (1) 5,200 5,200
California Housing Finance Agency Multifamily Housing Rev. 8.625% 8/1/2015 (1) 170 178
California Public Works Board (Dept. of Corrections) 5.50% 12/1/2012 (1) 2,000 2,174
California Public Works Board (Dept. of Corrections) 5.50% 1/1/2017 (2) 22,285 23,692
California Public Works Board (Dept. of Corrections) 5.625% 11/1/2016 (1) 9,200 9,993
California Public Works Board (Univ. of California) 5.375% 10/1/2017 (2) 8,250 8,691
Calleguas-Las Virgenes CA Public Finance Auth. 5.00% 11/1/2017 (4) 3,435 3,500
Calleguas-Las Virgenes CA Public Finance Auth. 5.00% 11/1/2023 (4) 13,500 13,511
Capistrano CA Unified Public Schools 5.70% 9/1/2016 (2) 10,000 10,887
Central Coast CA Water Auth. Rev. 5.00% 10/1/2022 (2) 7,500 7,505
Chino CA Basin Finance Auth. Muni. Water Dist. 6.00% 8/1/2016 (2) 5,500 6,084
Clovis CA Unified School Dist. 0.00% 8/1/2007 (3) 15,000 10,435
Clovis CA Unified School Dist. 0.00% 8/1/2008 (3) 14,265 9,427
Clovis CA Unified School Dist. 0.00% 8/1/2009 (3) 19,725 12,386
Clovis CA Unified School Dist. 0.00% 8/1/2010 (3) 21,485 12,826
Clovis CA Unified School Dist. 0.00% 8/1/2011 (3) 1,625 917
Contra Costa CA COP 5.50% 6/1/2012 (2) 6,850 7,316
Contra Costa CA COP 6.70% 2/1/1999 (2)(Prere.) 4,630 4,751
Contra Costa CA Water Dist. Rev. 5.50% 10/1/2019 (1) 5,000 5,259
Culver City CA Redev. Finance Auth. 6.75% 11/1/1999 (2)(Prere.) 955 1,002
East Bay CA Muni. Util. Dist. Waste Water Treatment System Rev. 6.50% 6/1/2004 (2)(Prere.) 2,000 2,307
Eastern California Muni. Water Dist. 6.75% 7/1/2012 (3) 8,500 10,516
El Dorado County CA Public Agency Finance Auth. Rev. 5.50% 2/15/2016 (3) 9,000 9,595
Elsinore Valley CA Muni. Water Dist. COP 6.00% 7/1/2012 (3) 2,210 2,566
Encina CA Power Auth. Waste Water Rev. 6.875% 8/1/1999 (3)(Prere.) 3,650 3,817
Fresno CA Water System Rev. 5.00% 6/1/2024 (3) 3,000 3,003
Glendale CA Hosp. Rev. (Adventist Health System) 6.00% 3/1/2014 (1) 3,000 3,196
Imperial Irrigation Dist. of California Electric Rev. 5.00% 11/1/2018 (1) 3,800 3,851
Kern CA High School Dist. GO 6.25% 8/1/2011 (1) 1,065 1,256
Kern CA High School Dist. GO 6.40% 8/1/2014 (1) 1,490 1,776
Kern CA High School Dist. GO 6.40% 8/1/2015 (1) 1,645 1,959
Kern CA High School Dist. GO 6.40% 8/1/2016 (1) 1,815 2,163
La Quinta CA Redev. Agency (Tax Allocation Project) 7.30% 9/1/2010 (1) 1,145 1,458
Long Beach CA Financing Auth. Rev. 5.50% 10/1/2018 (1) 5,030 5,396
Long Beach CA Financing Auth. Rev. 6.00% 11/1/2017 (2) 2,000 2,307
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
CALIFORNIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Los Angeles CA Dept. of Water & Power Rev. 5.00% 10/15/2017 (1) $ 11,600 $ 11,765
Los Angeles CA Dept. of Water & Power Rev. 5.00% 10/15/2018 (1) 11,600 11,716
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.00% 7/1/2012 (4) ++ 8,090 8,384
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.00% 7/1/2023 (2) 10,100 10,108
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.25% 7/1/2011 (4) ++ 9,570 10,201
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.25% 7/1/2023 (2) 13,025 13,264
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. 5.25% 7/1/2027 (1) 8,210 8,415
Los Angeles County CA Metro. Transp. Auth. Sales Tax Rev. VRDO 2.80% 12/3/1998 (1) 1,500 1,500
Los Angeles County CA Unified School Dist. 5.00% 7/1/2023 (3) 10,000 10,008
MSR California Public Power Agency (San Juan Project) 6.125% 7/1/2013 (2) 8,000 9,360
MSR California Public Power Agency (San Juan Project) 6.75% 7/1/2020 (1)(ETM) 38,785 47,015
MSR California Public Power Agency VRDO (San Juan Project) 3.25% 12/2/1998 (1) 7,000 7,000
Metro. Water Dist. of Southern California 5.50% 7/1/2025 (1) 20,000 21,061
Modesto CA Irrigation Dist. Finance Auth. Rev.
(Domestic Water Project) 5.75% 9/1/2005 (2)(Prere.) 3,750 4,242
Modesto CA Irrigation Dist. Finance Auth. Rev. (Woodland Project) 6.50% 10/1/2011 (2) 8,125 9,829
Modesto CA Irrigation Dist. Finance Auth. Rev. (Woodland Project) 6.50% 10/1/2022 (2) 9,750 11,957
North City West CA School Fac. Financing Auth. 6.00% 9/1/2019 (4) 2,000 2,218
Northern California Power Agency (Hydro Electric Project) 6.00% 7/1/2009 (1) 7,530 8,658
Northern California Power Agency (Hydro Electric Project) 6.30% 7/1/2018 (1) 10,000 11,876
Northern California Power Agency (Hydro Electric Project) 7.50% 7/1/2021 (2)(Prere.) 1,810 2,407
Oakland CA Building Auth. Lease Rev. (Harris Building) 5.00% 4/1/2023 (2) 4,000 4,003
Oakland CA Building Auth. Lease Rev. (Harris Building) 5.25% 4/1/2010 (2) 5,495 5,938
Oakland CA Redev. Agency (Central Dist. Project) 5.50% 2/1/2014 (2) 5,500 6,017
Orange County CA Sanitation Dist. VRDO 2.80% 12/3/1998 (2) LOC 974 974
Orange County CA Sanitation Dist. VRDO 3.25% 12/2/1998 (2) 6,100 6,100
Pasadena CA Unified School Dist. 5.00% 5/1/2023 (3) 5,155 5,159
Pomona CA Unified School Dist. GO 5.60% 8/1/2014 (1) 1,585 1,749
Pomona CA Unified School Dist. GO 5.60% 8/1/2015 (1) 2,000 2,199
Pomona CA Unified School Dist. GO 5.60% 8/1/2016 (1) 1,000 1,097
Pomona CA Unified School Dist. GO 7.50% 8/1/2017 (1) 2,540 3,349
Port of Oakland CA Rev. 5.40% 11/1/2017 (1) 16,705 17,723
Port of Oakland CA Rev. 5.60% 11/1/2019 (1) 22,280 23,859
Rancho CA Water Dist. Finance Auth. Rev. 5.875% 11/1/2010 (3) 3,585 4,003
Rancho CA Water Dist. Finance Auth. Rev. 6.25% 8/1/2012 (3) 3,000 3,243
Redding CA Joint Power Finance Auth. Waste Water Rev. 5.50% 12/1/2018 (3) 5,400 5,615
Riverside CA Electric Refunding Rev. 5.375% 10/1/2013 (2) 5,895 6,305
Riverside County CA Transp. Comm. Rev. 5.75% 6/1/2009 (2) 3,800 4,303
Sacramento CA Finance Auth. Rev. 5.25% 5/1/2016 (2) 9,700 10,164
Sacramento CA Finance Auth. Rev. 5.25% 5/1/2019 (2) 21,950 22,717
Sacramento CA Finance Auth. Rev. 5.375% 11/1/2014 (2) 9,000 9,717
Sacramento CA Finance Auth. Rev. 5.40% 11/1/2020 (2) 9,785 10,561
Sacramento CA Muni. Util. Dist. Rev. 6.25% 8/15/2010 (1) 33,800 39,948
Sacramento CA Muni. Util. Dist. Rev. 6.30% 8/15/2018 (1) 14,000 15,308
Sacramento CA Redev. Agency (Tax Allocation Project) 6.50% 11/1/2000 (1)(Prere.) 4,850 5,231
Sacramento CA Redev. Agency (Tax Allocation Project) 6.50% 11/1/2013 (1) 650 696
Sacramento County CA Public Fac. Finance Corp. COP
(Main Detention Fac. Project) 5.50% 6/1/2010 (1) 5,760 6,404
San Bernardino County CA COP (Medical Center Financing Project) 5.50% 8/1/2005 (1)(Prere.) 12,790 14,219
San Bernardino County CA COP (Medical Center Financing Project) 6.50% 8/1/2017 (1) 17,915 21,666
San Diego CA Financing Auth. Lease Rev.
(Convention Center Expansion) 5.25% 4/1/2014 (2) 5,680 6,001
San Diego CA Public Fac. Financing Auth. Sewer Rev. 5.25% 5/15/2027 (3) 6,450 6,622
San Diego CA Unified School Dist. COP 5.00% 8/1/2009 (1) 4,875 5,148
San Diego CA Water Auth. COP 5.25% 5/1/2015 (3) 14,290 15,015
San Francisco CA Building Auth. Lease Rev. (Civic Center) 5.25% 12/1/2016 (2) 22,575 23,594
San Francisco CA Building Auth. Lease Rev. (Civic Center) 5.25% 12/1/2021 (2) 15,000 15,387
San Francisco CA Bay Area Rapid Transit Rev. 6.75% 7/1/2010 (2) 6,370 7,808
San Francisco CA Bay Area Rapid Transit Rev. 6.75% 7/1/2011 (2) 7,455 9,175
San Francisco CA City & County Rev. GO 5.00% 6/15/2016 (3) 10,000 10,205
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
San Francisco CA City & County Airport Rev. 5.65% 5/1/2006 (3)(Prere.) $ 6,200 $ 6,935
San Francisco CA City & County Airport Rev. 6.00% 5/1/2010 (1) 2,000 2,210
San Francisco CA City & County Airport Rev. 6.00% 5/1/2011 (1) 2,100 2,308
San Francisco CA City & County Airport Rev. 6.00% 5/1/2020 (1) 6,500 7,117
San Francisco CA City & County Airport Rev. 6.20% 5/1/2006 (2) 5,000 5,483
San Francisco CA City & County Airport Rev. 6.20% 5/1/2008 (2) 1,000 1,097
San Francisco CA City & County Airport Rev. 6.30% 5/1/2011 (2) 5,000 5,477
San Francisco CA City & County Airport Rev. 6.50% 5/1/2006 (1) 3,280 3,691
San Francisco CA City & County Airport Rev. 6.60% 5/1/2007 (1) 2,490 2,812
San Francisco CA City & County Airport Rev. 6.625% 5/1/2008 (1) 3,720 4,205
San Francisco CA City & County Airport Rev. 6.70% 5/1/2009 (1) 3,970 4,500
San Joaquin Hills CA Transp. Corridor Agency Toll Road Rev. 5.375% 1/15/2029 (1) 34,290 35,715
San Jose CA Redev. Agency (Merged Area Redev. Project) 5.00% 8/1/2020 (1) 3,500 3,508
San Jose CA Redev. Agency (Merged Area Redev. Project) 6.00% 8/1/2011 (1) 8,845 10,254
San Mateo County CA Finance Auth. 6.50% 7/1/2013 (1) 14,560 17,614
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2009 (3) 4,895 3,075
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2010 (3) 7,050 4,191
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2011 (3) 7,355 4,129
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2012 (3) 6,645 3,516
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2013 (3) 7,430 3,699
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2014 (3) 8,290 3,904
San Ramon Valley CA Unified School Dist. GO 0.00% 7/1/2015 (3) 5,605 2,487
Santa Ana CA Finance Auth. Rev. 6.25% 7/1/2016 (1) 5,345 6,307
Santa Ana CA Finance Auth. Rev. 6.25% 7/1/2017 (1) 2,000 2,365
Santa Clara CA Redev. Agency (Bayshore Project) 7.00% 7/1/2010 (2) 7,000 8,645
Santa Clara CA Valley Water Dist. COP 6.00% 2/1/2024 (3) 20,000 21,988
Santa Clara County CA Financing Auth. Lease Rev. 5.00% 11/15/2017 (2) 5,500 5,597
Santa Clara County CA Financing Auth. Lease Rev. 5.00% 11/15/2022 (2) 8,690 8,697
Santa Clara County CA Financing Auth. Lease Rev. 5.50% 5/15/2013 (2) ++ 5,050 5,194
Santa Clara County CA Financing Auth. Lease Rev. 5.50% 5/15/2014 (2) ++ 5,325 5,432
Santa Clara County CA Financing Auth. Lease Rev. 5.50% 5/15/2015 (2) ++ 5,620 5,706
Santa Fe Springs CA Redev. Agency 6.00% 9/1/2014 (1) 5,350 5,841
Santa Rosa CA Waste Water Rev. 6.00% 9/1/2015 (3) 5,580 6,414
Santa Rosa CA Waste Water Rev. 6.25% 9/1/2002 (3)(Prere.) 7,075 7,833
Santa Rosa CA Waste Water Service Fac. Dist. 6.00% 7/2/2015 (2) 7,000 8,040
South Coast CA Air Quality Management Dist. Rev. 5.50% 8/1/2014 (1) 8,000 8,532
South Coast CA Air Quality Management Dist. Rev. 6.00% 8/1/2011 (2)+ 3,200 3,710
South County CA Waste Water Auth. (Gilroy) 5.50% 8/1/2022 (3) 8,625 8,943
South Orange County CA Public Finance Auth. 7.00% 9/1/2011 (1) 3,000 3,772
South Orange County CA Public Finance Auth. 9.50% 8/15/2004 (1) 3,000 3,863
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/1999 (2)(Prere.) 1,395 1,428
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/2007 (2) 1,070 1,094
Southern California Public Power Auth. (Palo Verde Project) 7.00% 7/1/2010 (2) 1,635 1,671
Southern California Public Power Auth.
(Southern Transmission Project) 5.75% 7/1/2021 (1) 3,000 3,204
Sweetwater CA Water Rev. 7.00% 4/1/1999 (2)(Prere.) 3,050 3,152
Three Valley CA Muni. Water Dist. COP 5.25% 11/1/2010 (3) 4,220 4,434
Tulare County CA COP 5.00% 8/15/2014 (1) 5,065 5,255
Tulare County CA COP 5.00% 8/15/2015 (1) 6,460 6,667
Ukiah CA Electric Rev. 6.00% 6/1/2008 (1) 4,565 5,250
Ukiah CA Electric Rev. 6.25% 6/1/2018 (1) 6,000 7,111
Univ. of California Rev. (Medical Center) 5.75% 7/1/2012 (2) 10,395 11,394
Univ. of California Rev. (Medical Center) 5.75% 7/1/2014 (2) 12,160 13,230
Univ. of California Rev. (Medical Center) 5.75% 7/1/2024 (2) 10,000 10,761
Univ. of California Rev. (Medical Center) 6.00% 7/1/2026 (2) 11,000 12,032
Univ. of California Rev. (Multiple Purpose Project) 5.125% 9/1/2020 (1) 18,000 18,214
Univ. of California Rev. (Multiple Purpose Project) 6.25% 9/1/2013 (1) 10,000 11,115
Walnut CA Public Finance Auth. 6.00% 9/1/2015 (1) 5,000 5,362
Walnut Valley CA Unified School Dist. 6.00% 8/1/2012 (2) 1,790 2,064
Walnut Valley CA Unified School Dist. 6.00% 8/1/2013 (2) 1,980 2,278
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
CALIFORNIA INSURED LONG-TERM TAX-EXEMPT FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walnut Valley CA Unified School Dist. 6.00% 8/1/2014 (2) $ 2,205 $ 2,531
Walnut Valley CA Unified School Dist. 6.00% 8/1/2015 (2) 2,470 2,829
Walnut Valley CA Unified School Dist. 6.00% 8/1/2016 (2) 2,690 3,096
Walnut Valley CA Unified School Dist. 6.20% 8/1/2009 (2) 1,270 1,493
West Sacramento CA Financing Auth. Rev.
(Water System Improvement Project) 5.25% 8/1/2008 (3) 2,160 2,283
West Sacramento CA Tax Allocation (Redev. Project) 6.25% 9/1/2001 (1)(Prere.) 8,250 9,001
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.25% 6/1/2007 (1) 4,260 4,932
Whittier CA Insured Health Fac. Rev. (Presbyterian Hosp.) 6.25% 6/1/2008 (1) 3,530 4,089
OUTSIDE CALIFORNIA:
Puerto Rico Govt. Dev. Bank VRDO 2.90% 12/2/1998 (1) 100 100
---------
1,371,313
---------
SECONDARY MARKET INSURED (3.2%)
California GO 6.25% 9/1/2012 (3) 9,000 10,693
California Public Works Board (Dept. of Corrections) 6.50% 9/1/2017 (2) 30,000 36,425
---------
47,118
---------
NONINSURED (6.7%)
Beverly Hills CA Public Financing Auth. Lease Rev.
(Capital Improvement Project) 5.25% 6/1/2028 10,000 10,243
California Dept. of Water Resources (Central Valley Project) 6.40% 6/1/2002 (Prere.) 20,400 22,570
California Educ. Fac. Auth. Rev. (Univ. of Southern California Project) 5.80% 10/1/2015 6,550 7,004
California Health Fac. Finance Auth. VRDO
(Adventist Health System West Sutter Health) 2.50% 12/3/1998 LOC 800 800
California Health Fac. Finance Auth. VRDO (St. Joseph Health) 3.00% 12/2/1998 2,500 2,500
California PCR Financing Auth. VRDO (Pacific Gas & Electric Co.) 3.35% 12/2/1998 400 400
California RAN 4.00% 6/30/1999 8,900 8,954
East Bay CA Muni. Util. Dist. Rev. 5.25% 6/1/2018 4,000 4,133
East Bay CA Muni. Util. Dist. Rev. 5.25% 6/1/2019 4,445 4,577
Irvine CA Assessment Dist. VRDO 3.25% 12/2/1998 LOC 8,100 8,100
Irvine CA Ranch Water Dist. VRDO 3.10% 12/2/1998 LOC 600 600
Los Angeles CA Dept. of Water & Power Electric Plant Rev. 6.50% 4/1/2010 3,950 4,348
Los Angeles County CA Public Works Financing Auth. Rev. 5.50% 10/1/2012 6,750 7,344
Metro. Water Dist. of Southern California 8.00% 7/1/2008 2,000 2,604
Orange County CA Sanitation Dist. VRDO 3.25% 12/2/1998 LOC 1,400 1,400
Riverside County CA Public Fac. Project VRDO 2.75% 12/8/1998 LOC 1,400 1,400
Sacramento CA Muni. Util. Auth. Dist. 8.00% 11/15/2010 205 206
OUTSIDE CALIFORNIA:
Puerto Rico Highway & Transp. Auth. Rev. VRDO 2.90% 12/2/1998 LOC 2,300 2,300
Puerto Rico TRAN 3.50% 7/30/1999 10,000 10,045
---------
99,528
---------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,404,189) 1,517,959
- ------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.0%)
- ------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 34,288
Payables for Investment Securities Purchased (57,636)
Other Liabilities (6,055)
---------
(29,403)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------------------------------------
Applicable to 126,902,077 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,488,556
==============================================================================================================================
NET ASSET VALUE PER SHARE $11.73
==============================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
+Security segregated as initial margin for open futures contracts.
For key to abbreviations and other references, see page 31.
30
<PAGE> 33
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PER
AMOUNT SHARE
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,368,752 $10.79
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 6,916 .05
Unrealized Appreciation (Depreciation)--Notes E and F
Investment Securities 113,770 .90
Futures Contracts (882) (.01)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,488,556 $11.73
==========================================================================================================================
</TABLE>
KEY TO ABBREVIATIONS
COP--Certificate of Participation.
CP--Commercial Paper.
GO--General Obligation Bond.
IDR--Industrial Development Revenue Bond.
PCR--Pollution Control Revenue Bond.
RAN--Revenue Anticipation Note.
TAN--Tax Anticipation Note.
TOB--Tender Option Bond.
TRAN--Tax Revenue Anticipation Note.
VRDO--Variable Rate Demand Obligation.
(ETM)--Escrowed to Maturity.
(Prere.)--Prerefunded.
++Security purchased on a when-issued or delayed delivery basis for which the
fund has not taken delivery as of November 30, 1998.
Scheduled principal and interest payments are guaranteed by:
(1)MBIA (Municipal Bond Insurance Association).
(2)AMBAC (Ambac Assurance Corporation).
(3)FGIC (Financial Guaranty Insurance Company).
(4)FSA (Financial Security Assurance).
(5)BIGI (Bond Investors Guaranty Insurance).
(6)Connie Lee Inc.
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
31
<PAGE> 34
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to the fund. These expenses directly
reduce the amount of investment income available to pay to shareholders as
tax-exempt income dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period. If a
fund invested in futures contracts during the period, the results of these
investments are shown separately.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CALIFORNIA CALIFORNIA
CALIFORNIA INSURED INSURED
TAX-EXEMPT INTERMEDIATE-TERM LONG-TERM
MONEY MARKET TAX-EXEMPT TAX-EXEMPT
FUND FUND FUND
-------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998
-------------------------------------------------
(000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $62,722 $37,191 $ 68,711
-------------------------------------------------
Total Income 62,722 37,191 68,711
-------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 246 95 167
Management and Administrative 2,880 1,120 1,982
Marketing and Distribution 621 229 292
Custodian Fees 26 9 16
Auditing Fees 9 8 8
Shareholders' Reports 23 5 18
Annual Meeting and Proxy Costs 3 1 3
Trustees' Fees and Expenses 3 1 2
-------------------------------------------------
Total Expenses 3,811 1,468 2,488
Expenses Paid Indirectly--Note C (26) (9) (16)
-------------------------------------------------
Net Expenses 3,785 1,459 2,472
- ------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 58,937 35,732 66,239
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 1 (8) 14,652
Futures Contracts -- (1,034) (1,044)
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 1 (1,042) 13,608
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- 22,045 27,362
Futures Contracts -- (229) (838)
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- 21,816 26,524
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $58,938 $56,506 $106,371
========================================================================================================================
</TABLE>
32
<PAGE> 35
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund distributes its income
to shareholders each day, the amounts of Distributions--Net Investment Income
generally equal the net income earned as shown under the Operations section. The
amounts of Distributions--Realized Capital Gain may not match the capital gains
shown in the Operations section, because distributions are determined on a tax
basis and may be made in a period different from the one in which the gains were
realized on the financial statements. The Capital Share Transactions section
shows the amount shareholders invested in the fund, either by purchasing shares
or by reinvesting distributions, and the amounts redeemed. The corresponding
numbers of Shares Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CALIFORNIA CALIFORNIA INSURED
TAX-EXEMPT INTERMEDIATE-TERM
MONEY MARKET FUND TAX-EXEMPT FUND
------------------------ ------------------------
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 58,937 $ 55,048 $ 35,732 $ 22,323
Realized Net Gain (Loss) 1 19 (1,042) (1,003)
Change in Unrealized Appreciation (Depreciation) -- -- 21,816 7,077
------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations 58,938 55,067 56,506 28,397
------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (58,937) (55,048) (35,732) (22,323)
Realized Capital Gain -- -- -- (729)
------------------------------------------------------------------
Total Distributions (58,937) (55,048) (35,732) (23,052)
------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 2,145,061 1,814,001 561,031 358,923
Issued in Lieu of Cash Distributions 54,801 50,897 27,849 17,852
Redeemed (2,029,569) (1,508,080) (199,993) (128,781)
------------------------------------------------------------------
Net Increase from Capital Share Transactions 170,293 356,818 388,887 247,994
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 170,294 356,837 409,661 253,339
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,799,932 1,443,095 596,432 343,093
------------------------------------------------------------------
End of Year $1,970,226 $1,799,932 $1,006,093 $596,432
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 2,145,061 1,814,001 51,907 34,064
Issued in Lieu of Cash Distributions 54,801 50,897 2,573 1,692
Redeemed (2,029,569) (1,508,080) (18,538) (12,240)
------------------------------------------------------------------
Net Increase in Shares Outstanding 170,293 356,818 35,942 23,516
=========================================================================================================================
</TABLE>
33
<PAGE> 36
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
CALIFORNIA
INSURED LONG-TERM
TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
-------------------------------
1998 1997
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 66,239 $ 58,666
Realized Net Gain (Loss) 13,608 4,059
Change in Unrealized Appreciation (Depreciation) 26,524 8,533
-------------------------------
Net Increase in Net Assets Resulting from Operations 106,371 71,258
-------------------------------
DISTRIBUTIONS
Net Investment Income (66,239) (58,666)
Realized Capital Gain (7,325) (8,550)
-------------------------------
Total Distributions (73,564) (67,216)
-------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 398,698 254,391
Issued in Lieu of Cash Distributions 50,100 45,804
Redeemed (199,574) (163,271)
-------------------------------
Net Increase from Capital Share Transactions 249,224 136,924
- --------------------------------------------------------------------------------------------------------------------------
Total Increase 282,031 140,966
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,206,525 1,065,559
-------------------------------
End of Year $1,488,556 $1,206,525
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 34,419 22,618
Issued in Lieu of Cash Distributions 4,327 4,070
Redeemed (17,261) (14,544)
-------------------------------
Net Increase in Shares Outstanding 21,485 12,144
==========================================================================================================================
</TABLE>
34
<PAGE> 37
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund's Total Return and
shows net investment income and expenses as percentages of average net assets.
These data will help you assess: the variability of the fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the fund;
and the extent to which the fund tends to distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
fund for one year. Money market funds are not required to report a Portfolio
Turnover Rate.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .031 .034 .033 .036 .026
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
----------------------------------------------------------
Total from Investment Operations .031 .034 .033 .036 .026
----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.031) (.034) (.033) (.036) (.026)
Distributions from Realized Capital Gains -- -- -- -- --
----------------------------------------------------------
Total Distributions (.031) (.034) (.033) (.036) (.026)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
========================================================================================================================
TOTAL RETURN 3.10% 3.41% 3.32% 3.69% 2.59%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,970 $1,800 $1,443 $1,202 $1,159
Ratio of Total Expenses to Average Net Assets 0.20% 0.18% 0.19% 0.20% 0.19%
Ratio of Net Investment Income to Average Net Assets 3.05% 3.35% 3.27% 3.61% 2.57%
========================================================================================================================
</TABLE>
35
<PAGE> 38
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE-TERM TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
------------------------------------------------ MAR. 4* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 1995 NOV. 30, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.66 $10.58 $10.44 $ 9.64 $10.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .489 .505 .508 .511 .346
Net Realized and Unrealized Gain (Loss) on Investments .290 .102 .140 .800 (.360)
-------------------------------------------------------------
Total from Investment Operations .779 .607 .648 1.311 (.014)
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.489) (.505) (.508) (.511) (.346)
Distributions from Realized Capital Gains -- (.022) -- -- --
-------------------------------------------------------------
Total Distributions (.489) (.527) (.508) (.511) (.346)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.95 $10.66 $10.58 $10.44 $ 9.64
=========================================================================================================================
TOTAL RETURN 7.47% 5.91% 6.41% 13.88% -0.19%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,006 $596 $343 $206 $100
Ratio of Total Expenses to Average Net Assets 0.19% 0.18% 0.19% 0.21% 0.19%**
Ratio of Net Investment Income to Average Net Assets 4.52% 4.78% 4.90% 5.05% 4.97%**
Portfolio Turnover Rate 2% 10% 21% 11% 6%
=========================================================================================================================
</TABLE>
*Inception.
**Annualized.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CALIFORNIA INSURED LONG-TERM TAX-EXEMPT FUND
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.45 $11.42 $11.27 $ 9.92 $11.30
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .577 .592 .598 .602 .604
Net Realized and Unrealized Gain (Loss) on Investments .349 .121 .150 1.350 (1.228)
-------------------------------------------------------------
Total from Investment Operations .926 .713 .748 1.952 (.624)
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.577) (.592) (.598) (.602) (.604)
Distributions from Realized Capital Gains (.069) (.091) -- -- (.152)
-------------------------------------------------------------
Total Distributions (.646) (.683) (.598) (.602) (.756)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.73 $11.45 $11.42 $11.27 $ 9.92
=========================================================================================================================
TOTAL RETURN 8.31% 6.52% 6.91% 20.11% -5.88%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,489 $1,207 $1,066 $975 $834
Ratio of Total Expenses to Average Net Assets 0.19% 0.16% 0.19% 0.20% 0.19%
Ratio of Net Investment Income to Average Net Assets 4.98% 5.26% 5.38% 5.59% 5.60%
Portfolio Turnover Rate 15% 21% 23% 23% 28%
=========================================================================================================================
</TABLE>
36
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
Vanguard California Tax-Exempt Funds comprises the California Tax-Exempt Money
Market Fund, California Insured Intermediate-Term Tax-Exempt Fund, and
California Insured Long-Term Tax-Exempt Fund, each of which is registered under
the Investment Company Act of 1940 as an open-end investment company, or mutual
fund. Each fund invests in debt instruments of municipal issuers whose ability
to meet their obligations may be affected by economic and political developments
in the state of California.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The funds consistently follow such
policies in preparing their financial statements.
1. SECURITY VALUATION: Tax-Exempt Money Market Fund: Investment securities
are valued at amortized cost, which approximates market value. Other funds:
Bonds, and temporary cash investments acquired over 60 days to maturity, are
valued using the latest bid prices or using valuations based on a matrix system
(which considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Other temporary
cash investments are valued at amortized cost, which approximates market value.
Securities for which market quotations are not available are valued by methods
deemed by the Board of Trustees to represent fair value.
2. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. FUTURES CONTRACTS: Each fund, except the Tax-Exempt Money Market Fund,
may use Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note futures
contracts, with the objectives of enhancing returns, managing interest-rate
risk, maintaining liquidity, diversifying credit risk and minimizing transaction
costs. The funds may purchase or sell futures contracts instead of bonds to take
advantage of pricing differentials between the futures contracts and the
underlying bonds. The funds may also seek to take advantage of price differences
among bond market sectors by simultaneously buying futures (or bonds) of one
market sector and selling futures (or bonds) of another sector. Futures
contracts may also be used to simulate a fully invested position in the
underlying bonds while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of bonds held by the funds and the prices of
futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
original issue discounts are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the funds under methods approved by the Board of
Trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At November 30, 1998, the funds had
contributed capital to Vanguard (included in Other Assets) of:
37
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF FUND OF VANGUARD'S
CALIFORNIA TAX-EXEMPT FUND (000) NET ASSETS CAPITALIZATION
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $364 0.02% 0.5%
Insured Intermediate-Term 182 0.02 0.3
Insured Long-Term 273 0.02 0.4
-----------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
C. The funds' custodian bank has agreed to reduce its fees when the funds
maintain cash on deposit in the non-interest-bearing custody account. For the
year ended November 30, 1998, custodian fee offset arrangements reduced expenses
by:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ANNUALIZED
TOTAL EXPENSE
REDUCTION AS
EXPENSE A PERCENTAGE
REDUCTION OF AVERAGE
CALIFORNIA TAX-EXEMPT FUND (000) NET ASSETS
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market $26 --
Insured Intermediate-Term 9 --
Insured Long-Term 16 --
-----------------------------------------------------------------------------------------------
</TABLE>
D. During the year ended November 30, 1998, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
(000)
------------------------------
CALIFORNIA TAX-EXEMPT FUND PURCHASES SALES
--------------------------------------------------------------------------------------------
<S> <C> <C>
Insured Intermediate-Term $427,522 $ 17,953
Insured Long-Term 483,733 190,964
--------------------------------------------------------------------------------------------
</TABLE>
E. Capital gains distributions are determined on a tax basis and may differ
from realized capital gains for financial reporting purposes due to differences
in the timing of realization of gains. The Insured Intermediate-Term Tax-Exempt
Fund and the Insured Long-Term Tax-Exempt Fund had realized losses totaling
$1,950,000 and $7,986,000, respectively, through November 30, 1998, which are
deferred for tax purposes and reduce the amount of unrealized appreciation on
investment securities for tax purposes (see Note F.) For federal income tax
purposes at November 30, 1998, the funds had the following capital gains
available for distribution, or capital losses available to offset future capital
gains:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
CAPITAL LOSS
--------------------------------
CAPITAL GAINS EXPIRATION
AVAILABLE FOR FISCAL YEAR(S)
DISTRIBUTION AMOUNT ENDING
CALIFORNIA TAX-EXEMPT FUND (000) (000) NOVEMBER 30
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market -- $ (65) 2000-2006
Insured Intermediate-Term -- (756) 2005-2006
Insured Long-Term $14,020 -- --
-----------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
F. At November 30, 1998, net unrealized appreciation of investment securities
for federal income tax purposes was:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
---------------------------------------------------------
APPRECIATED DEPRECIATED NET UNREALIZED
CALIFORNIA TAX-EXEMPT FUND SECURITIES SECURITIES APPRECIATION
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Intermediate-Term $ 40,311 $ (149) $ 40,162
Insured Long-Term 106,848 (1,064) 105,784
-----------------------------------------------------------------------------------------------
</TABLE>
At November 30, 1998, the aggregate settlement value of open futures
contracts expiring through March 1999 and the related unrealized depreciation
were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(000)
---------------------------------
CALIFORNIA AGGREGATE
TAX-EXEMPT FUND/ NUMBER OF LONG SETTLEMENT UNREALIZED
FUTURES CONTRACTS (SHORT) CONTRACTS VALUE DEPRECIATION
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured Intermediate-Term/
U.S. Treasury Note (422) $ 50,264 $(205)
Insured Long-Term/
U.S. Treasury Bond (977) 124,769 (882)
----------------------------------------------------------------------------------------------
</TABLE>
Unrealized depreciation on open futures contracts is required to be treated as
realized loss for tax purposes.
39
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of Vanguard California Tax-Exempt Funds
[PHOTO]
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
California Tax-Exempt Money Market Fund, California Insured Intermediate-Term
Tax-Exempt Fund, and California Insured Long-Term Tax-Exempt Fund (constituting
Vanguard California Tax-Exempt Funds, hereafter referred to as the "Funds") at
November 30, 1998, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 1999
SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD CALIFORNIA TAX-EXEMPT
FUNDS
This information for the fiscal year ended November 30, 1998, is included
pursuant to provisions of the Internal Revenue Code.
The Insured Long-Term Tax-Exempt Fund distributed $5,401,000 as capital
gain dividends (from net long-term capital gains) to shareholders in December
1997. Of the $5,401,000 capital gain dividends, the fund designates $1,116,000
as a 20% rate gain distribution.
Each fund designates 100% of its income dividends as exempt-interest
dividends.
40
<PAGE> 43
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & JohnsonoMerck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co., The Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co.,
NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
<PAGE> 44
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
first balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
Q750-1/21/1999
(C) 1999 Vanguard Marketing Corporation, Distributor. All rights reserved.
